The IRS Large Business and International Division (LB&I) will be targeting TEFRA violations in partnerships based upon recent changes in partnership related tax law. TEFRA (The Tax Equity and Fiscal Responsibility Act of 1982) regulations applying to partnerships created a set of consolidated IRS audit (examination), processing and judicial procedures which determine the tax implications of partnership related items at the partnership level for partnerships and Limited Liability Corporations (LLCs) filing as partnerships. TEFRA created the “unified partnership audit and litigation procedures.”
If you remember, new legislation enacted last year went into effect January 1, 2017 new audit rules replaced the old TEFRA and ELP (Electing Large Partnerships) audit procedures and replaced it with a single process. Each partnership must select the “tax matters partner” who will now be designated to the IRS as the “membership representative.” The IRS gained the power to collect imputed underpayment or back taxes owed by the partnership or individual taxpayers as a result of the partnership related income from the partnership entity itself. The IRS used to have to pursue individual partner taxpayers payments and ammended Schedule K-1s. These adjustments are now calculated at the highest nominal rate of income tax for US individuals (presently 39.6%).
As a result, the IRS Large Business and International Division or LB&I is developing new procedures, technology and revenue agent strategies to identify, link and assess taxation on “terminal” investors (actual US taxpayers) and partnership entities that pose the most significant TEFRA violations and compliance risks. The new accounting process for partnerships, Electing Large Partnerships or ELPs and LLCs who file as partnerships is much more complex and often leads to mistakes, underpayment and exposure to both an individual “terminal” partner and the partnership entity itself. Allen Barron is uniquely positioned to advise your partnership or LLC and guide you through the process of integrating the new rules to avoid an IRS audit.
The IRS has pulled agents with TEFRA violations expertise into a single unit and tasked them with focus upon this area of tax law. Allen Barron provides integrated business, legal, accounting and tax services to partnerships and LLCs leveraging economies of scale while providing greater insight and broader perspective into these new rules and the impact they have to both the business entity and the individual partners or investors. We invite you to contact us for a free consultation at 866-631-3470.