Last week, President Obama signed into law the Bipartisan Budget
Act of 2015. While there has been news coverage about the budget
agreement, little attention has been paid to the fact that it
dramatically changed the manner in which partnerships (including
LLCs that are taxed as partnerships) are audited.
Currently, most partnership audits are covered by TEFRA, the Tax
Equity and Fiscal Responsibility Act of 1982. Under TEFRA,
partnership audits and any corresponding judicial proceedings are
conducted at the partnership level. Once concluded, any adjustments
resulting from the partnership audit are then made at the partner
level, and the affected partners are assessed for their share of
any federal income taxes resulting from the partnership
adjustments. The adjustments impact those partners that were
partners for the tax year being audited. This is true even if there
has been a subsequent change in the ownership of the partnership.
For example, assume a partnership
