Risk & Business Magazine General Insurance Services Magazine | Page 25
AUDIT RULES
New Partnership
Audit Rules Take Effect
P
artnerships: take note! There
are new procedures in place for
filing your 2018 tax returns.
With the rising number of large
partnerships, the IRS has had
difficulty assessing taxes from partnership
audits in certain situations. As a result, it
has adopted new rules that will allow the
agency to assess and collect taxes and make
adjustments strictly at the partnership
level. This change will have important
implications for partnerships, and in most
cases, will require amendments to the
partnership agreement.
Beginning with the 2018 tax year, the “tax
matters partner” has been replaced with
the “partnership representative,” who will
have the sole authority to act on behalf
of the partnership for the purposes of an
audit. Although this individual does not
necessarily need to be a partner, he or she
will have broad responsibility to act on
behalf of the partnership in any federal
tax audit or related judicial tax proceeding.
With this change, liability will now be
imposed at the partnership level rather
than the partner level, and the highest tax
rate in effect for the year under audit—for
example, 37 percent for the 2018 tax year—
will be used in assessing tax.
UNDER THE NEW RULES,
LIABILITY IS IMPOSED IN THE
YEAR OF AN ADJUSTMENT
RATHER THAN THE YEAR TO
WHICH AN ADJUSTMENT
RELATES. THIS MEANS THAT
NEW PARTNERS MAY BEAR
THE BURDEN OF AN AUDIT
ASSESSMENT MADE FOR
A YEAR PRIOR TO THEM
EVEN BECOMING PARTNERS.
HOWEVER, SPECIAL RULES
MAY PERMIT MODIFICATIONS
TO THE ASSESSMENT,
INCLUDING ALLOCATION OF
ADJUSTMENTS TO PARTNERS
DURING PRIOR YEARS.
Partnerships with 100 or fewer partners
may be eligible for an annual election
to opt-out of the partnership-level audit
proceedings. To qualify, each partner
must be one of the following: Individual,
S Corporation, C Corporation, foreign
corporation, or estate of a deceased partner.
The election cannot be made if any partner
BY: DIANE WILCZEWSKI
TAX MANAGER,
ROWLEY AND COMPANY
is one of the following types of entity:
partnership, trust, or single-member LLC.
The opt-out statement must be made
annually with a timely filed (including
extension) partnership return.
Despite the overarching goal of facilitating
the IRS audit process, in the short term,
these new rules introduce fundamental
changes to how taxes are assessed and
collected during a partnership audit and
may raise important questions for your
business. To learn more about how these
changes will affect your partnership,
contact Rowley & Company at
219-874-1437 or
visit www.rowleyandco.com. +
Diane Wilczewski is a Tax Manager at Rowley
& Company with over 25 years of experience in
public accounting in several states. She is a New
York-licensed CPA with a specialty in taxation
and planning. The mother of four children,
Diane actively participates in several community
organizations and is Executive Director of the
La Porte Meals on Wheels. She is on the Board
of Directors of the New Human Research &
Development Institute, a group studying higher
brain function, and Voices of Variety, a group
that encourages creative expression.
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