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Reese Henry & Co
New Rules for Partnership Audits
Congress recently enacted significant changes to the IRS partnership audit and adjustment rules. The changes are expected to dramatically increase the audit rates for partnerships and will require partners to carefully review, if not revise, their partnership's operating agreement.

The new rules generally apply to partnership returns filed for tax years beginning on or after January 1, 2018, but careful planning today is imperative to mitigate any unfavorable consequences.
Important New Provisions
  • There are many new tax terms and concepts that will likely require you to adjust your partnership’s operating agreement.
  • The IRS may collect any additional tax, interest, and penalty directly from the partnership rather than from the partners (the tax could be collected at the highest individual tax rate).
  • Current partners could be responsible for tax liabilities of prior partners.
  • New elections and opt-outs will be available and your agreement may need revision to specify who makes these decisions.
Introducing the Partnership Representative
The new term "partnership representative" replaces the prior "tax matters partner." The partnership representative is critical; they will act at as a fiduciary to the partnership. The partnership representative will serve as the single point of contact between the IRS and the partnership and will have full authority to bind the partnership and the partners during an audit.
Potential Opportunities and the Need for Planning Today
Qualifying partnerships with 100 or fewer partners may elect out of the provisions. To do this, the partnership may make an annual "opt-out" election with their timely filed tax return (Form 1065). A partnership with partners classified as trusts, other partnerships, or disregarded entities does not qualify to make this election. We recommend contacting your attorney to review your existing partnership agreement(s). Your attorney may refer you to a tax attorney with expertise in drafting agreements under the new regulations.

Please call us if you would like to discuss these new partnership changes and review your planning opportunities.
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Reese Henry & Company
Phone: 970.925.3771  |  Email: Info@ReeseHenry.com

Aspen Office:
400­ East Main­ Street Aspen­, CO 81611­

Carbondale Office:
0326 Hwy­. 133, Suite­ 200 Carbondale­, CO ­81623

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