PARTNERSHIP REPRESENTATIVE FOR PARTNERSHIPS AND LIMITED LIABILITY COMPANIES

by | Feb 20, 2019

Effective for taxable years beginning after December 31, 2017, the procedures in effect since 1982 relating to the audit of entities taxed as partnerships, including limited liability companies, have been almost completely replaced.  This centralized partnership audit regime was enacted by the Bipartisan Budget Act of 2015 and just recently, the IRS finalized regulations providing practitioners guidance on its application.

A significant change is that of the required designation of a Partnership Representative (“PR”) for all partnerships and limited liability companies that are taxed as partnerships.  In contrast to a tax matters partner representing the partnership in all tax matters, a single individual or the PR now has the exclusive authority to represent and bind the partnership and its partners in any matter involving an examination of partnership-related items or tax controversy.  This is not simply a change of title.  The PR has duties, responsibilities, and authority vastly more significant than those of a tax matters partner.

Given the centralized role and increased authority of a PR, we recommend reviewing and updating your partnership and/or operating agreement(s) to ensure the appropriate individual is identified to serve as the PR prior to filing partnership tax returns for tax years beginning after December 31, 2017.  It is important to note that most of our small business clients who are eligible will likely want to “opt out” of the new audit rules.  Please confirm with your accountant regarding eligibility for opting out.  In any event, it is prudent to update your partnership and/or operating agreement(s) to identify a Partnership (or Company) RepresentativeFailure to appoint a PR in your partnership or operating agreement will result in the IRS being able to appoint one for you.

As to the specific impact on your business, please contact our office and your accountant.

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