The New Partnership Audit Rules Under The Bipartisam Act (BBA) of 2015

The Bipartisan Budget Act (BBA) of 2015 was signed into law in November 2015. This new law marks a major change in how the IRS will approach partnership audits. This law applies to tax returns filed for partnership tax years beginning in 2018 and repeals the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) that up until December 31, 2017 governed partnership administrative procedures. The BBA sets up a new, centralized system for the audit, adjustment, assessment, and collection of partnership-related taxes.

Main Changes

Partnership Level Assessment - Pursuant to the BBA, partnership adjustments will generally be assessed and collected at the partnership level. This represents a central change from current practice that is in tension with the general flow through treatment that has historically been accorded to partnerships under Subchapter K.

As such, generally, the IRS will be able to assess any additional tax resulting from an audit against the partnership itself. This will eliminate the need to proceed against individual partners. The assessment will be made against the partnership the year the audit concludes, and payment will be made from the partnership assets that year. That means those who are partners the year the audit concludes will bear the economic impact of the assessment – not those who were partners the year under audit.

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