The IRS requires partnerships and LLCs to name a partnership representative for IRS audits every year and file business tax returns in a timely manner. This law affects existing partnerships and LLCs, as well as any newly created LLC or partnership agreements, private placement memoranda, or any contract or document associated with the “grant, redemption or sale or transfer of a partnership or LLC interest.”
Years ago, if the IRS wanted to audit a partnership (or LLC) it would have to audit each partner or member separately. Under today’s laws and regulations, the IRS will conduct a single audit, and the partnership or LLC will be represented by a single representative.
This is why the IRS requires partnerships and LLCs to name a partnership representative for IRS audits on every tax return. It is important to note that all other partners or members in the LLC will have no input or right to participate. The “Representative for IRS Audits” will have the sole authority to act on behalf of the LLC or partnership.
If a default judgment is reached and money is owed, the partnership entity or LLC will be primarily responsible for paying the debt. It is important to note that the partnership entity and LLC may “push” the liability out to the individual partners or members, including members or partners who may no longer be associated with the entity but had an interest during the year(s) pertaining to the audit.
The fact that the IRS requires partnerships and LLCs to name a partnership representative for IRS audits on every tax return should be captured and addressed in the partnership agreement or LLC operating agreement. The entity will need to name a representative for IRS audits, however, it should also direct that representative to take no action and make no decisions without the authorization and written consent of a majority of the partners or members. Existing agreements and future agreements should also address the process for handling the payment of any amounts owed as a result of an IRS audit.
Allen Barron is uniquely positioned to advise your partnership or LLC in all matters associated with business, tax issues, legal challenges and accounting. This integrated blend of services ensures that all disciplines are working together guided by the same objectives and vision established by the partnership or LLC. Contact Allen Barron today or call to schedule a free consultation at 866-631-3470.
