Responsibility For Deficiencies Will Shift To Partnerships Under New Audit Rules

Effective for tax years beginning after December 31, 2017, any additional tax or penalties resulting from a partnership audit will be assessed and collected at the partnership level in the year the audit is completed. Included in the Bipartisan Budget Act of 2015, these new audit rules calculate the partnership's imputed underpayment by applying the highest rate of tax in effect for the reviewed year to the partnership-level deficiency. This is a dramatic departure from the previous TEFRA partnership regime, which permitted partnership-level examinations but applied pass-through treatment to calculate and assess liability at the partner level.

There are two primary methods for avoiding partnership-level assessment: