Partnership Audit Rules Changed Significantly

On Nov. 2, 2015, the Bipartisan Budget Act of 2015 (BBA) became law. The BBA provides new rules that will replace the long-standing Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) and the Electing Large Partnership rules that previously governed partnership audits. Some minor changes were made by the PATH Act (Dec. 18).

Under the BBA rules, if a partnership understates its income or overstates its deductions, it is subject to an income tax. The tax is imposed and payable in the year the audit is completed or, if the partnership seeks judicial review, the year the court decision is final.