Why is the Partnership Representative so important ?
The Partnership Representative has broad powers to obligate the LLC or LP . Any resolution they arrive at with the IRS binds all of the partners . You want to have the right person in place for this . If you don ’ t appoint such a person , the IRS can appoint someone for you . You don ’ t want the IRS to have such a power over your entity . This is a key reason why LLC Operating Agreements and LP Limited Partnership Agreements must be amended to preappoint a Partnership Representative .
Who can be the Partnership Representative ?
The Partnership Representative must be an individual with a substantial presence in the United States . Initially , we typically appoint a General Partner of an LP or a Manager / Member of an LLC to fill this role . If the IRS later conducts an audit , a CPA or tax lawyer , who does not have to be a Partner or Member , can be appointed if desired . A professional firm can serve in this role but an individual with a substantial U . S . presence must also be identified . Again , if you don ’ t appoint one , the IRS can do it for you , which is not in your best interest .
Can I opt out of these new rules ?
Yes – but we don ’ t suggest it . Partnerships with no more than 100 eligible partners ( and not one ineligible partner ) can opt out and be governed by the old rules . However , ineligible partners include single member LLCs and living trusts . Virtually all of our clients currently or in the future will use a single member Wyoming LLC and / or a revocable living trust for their asset protection and estate planning goals . These strategies involve ineligible partners .
If you opt out and a single member LLC or a living trust becomes a partner then you are back into the new rules . But because you didn ’ t amend your documents and appoint a Partnership Representative , the IRS now gets to pick one for you . You don ’ t want to give them such power .
New IRS Rules for LLCs and LPs Taxed As Partnerships