Preparing For The New IRS Partnership Audit Regime

September 8, 2017 - As part of the Bipartisan Budget Act of 2015 (the "BBA") enacted in November 2015, the rules governing IRS audits of partnerships (including limited liability companies and other entities treated as partnerships for tax purposes) were radically changed, effective for tax years of partnerships beginning on or after January 1, 2018. Unless a partnership is eligible to "elect out" of the new regime and chooses to do so, the "partnership representative" designated by the partnership has the sole power to represent the partnership in audits and litigation, and its decisions are binding on all partners. Notwithstanding the long-standing principle that partnerships are pass-through entities that are not themselves subject to tax, additional taxes resulting from audits under the BBA rules generally are imposed on the partnership.