There are substantial changes to partnerships and LLCs required by the IRS as part of the Bipartisan Budget Act (BBA) which are scheduled to take effect January 1, 2018. The US Treasury Department issued new rules in January of this year which will substantially impact tax matters for partnerships as well as those LLCs who are classified as a partnership for US federal income tax purposes. Section 1101 of the BBA repeals the TEFRA and electing large partnership rules governing partnership audits and implements a “centralized partnership audit regime.” Generally speaking, the new IRS strategy is designed to make it easier to collect taxes owed as a result of an IRS audit by assessing and collecting taxes owed from the partnership or LLC instead of the partners or members themselves.
If you have a partnership or an LLC which is classified as a partnership for US income taxes it will be necessary to make revisions to the partnership agreement or operating agreement (LLC). You must establish a “Tax Matters Partner” or TMP who will be responsible for most of the partnership or LLC’s tax requirements including but not limited to:
- Preparing and filing tax returns
- Provision of tax information and income forms to all partners or members
- Serving as the primary point of contact and managing partner/member during an IRS audit
- Authority to make tax elections on behalf of the partnership or LLC (an optional election which can be added to the partnership or operating agreement)
The Trump administration has temporarily frozen new regulations for the IRS as a whole and delayed the Treasury Department from formally issuing the rules. The proposed new regulations will make it easier for the IRS to apply leverage to partnerships and LLCs to collect taxes owed as the result of an audit by pursuing the entity instead of the burden of auditing and pursing each partner or member individually. It is likely the delay on these rules will be lifted in the near future, and partnerships or LLCs who do not take action to prepare for the coming changes to partnerships and LLCs do so at their own personal and business risk and peril.
Allen Barron is uniquely positioned to help with resulting changes to partnerships and LLCs through this transition. Our integrated legal, tax, accounting and business advisory services provide partnerships and LLCs with a single vendor who can advise and manage these issues. Our legal team will draft the required changes to the partnership or operating agreement. Our tax attorneys will provide sound counsel on all IRS and state-level tax issues. Our accounting team can provide bookkeeping or extensive accounting services. Our experienced business advisory group helps the partnership or LLC to develop sound strategy and implement operational tactics to accomplish the goals and objectives of the entity. We invite you to contact us or call 866-631-3470 for a free consultation.
