Significant Changes Made To Partnership Tax Audit Procedures Will Require Modifications To Partnership Agreements

On November 2, President Obama signed the Bipartisan Budget Act of 2015 (the "Act"), which significantly changes the procedures for tax audits of partnerships. The Act, which will be effective for tax years beginning after December 31, 2017, will replace the audit rules under the Tax Equity and Fiscal Responsibility Act of 1982 ("TEFRA"). The sweeping changes in the realm of partnership tax audits will likely require revisions to most partnership agreements and new considerations when entering or leaving a partnership.

Current Partnership Audit Procedures

Currently, partnerships and limited liability companies ("LLCs") taxed as partnerships are subject to audit procedures adopted under TEFRA. The primary procedures under TEFRA are: