The IRS partnership audit process continues to develop. The “centralized audit regime” fundamentally changed the way the IRS audited partnerships. On August 9 of this year the IRS released final regulations regarding naming the partnership representative, as well as the process to remove or replace this designated representative for all IRS tax matters.
The final regulations allow for a “disregarded entity” to be designated as the partnership representative. Technically speaking, a disregarded entity is a separate business entity from the partnership but which elects to be disregarded as separate from the partnership for the purpose the purpose of federal taxes. The disregarded entity is separate from the individual for liability purposes and is taxed through an individual’s tax return based on net income.
In addition, the partnership itself may name itself as as it’s own partnership representative. In these cases the partnership must still identify a “designated individual” who will handle communication responsibilities with the IRS.
The partnership representative must have a “substantial presence” in the United States with a local physical address and phone number so that they may be easily reached and meet locally with IRS representatives.
The partnership representative must be clearly identified on the partnership’s tax return. The partnership representative may be changed at any time with the consent of the IRS. This requirement is only waived when an administrative proceeding is about to commence. There was a change in the process for replacing a resigning partnership representative. Previously the outgoing partnership representative could name their own replacement. The final regulations specify the preference to “leave such responsibility with the partnership.”
Partnership audits are quite complex and obviously carry significant financial risks and concerns for all involved. This is why it is important to contact the experienced IRS tax audit attorneys at Allen Barron if your partnership receives notification of an IRS audit. Learn about the substantial integrated tax, legal and accounting services available at Allen Barron and how we can help to ensure the best possible outcome for your partnership. Contact Allen Barron or call 866-631-3470 for a free consultation.