Regulations Address Election to Apply New Partnership Audit Rules Before 2018 (T.D. 9780; NPRM REG-105005-16)

CCH Tax Day Report

The IRS has issued temporary and proposed regulations regarding an election to apply the new partnership audit regime enacted by the Bipartisan Budget Act of 2015 (P.L. 114-74) (BBA) to returns filed for tax years beginning before January 1, 2018. The new rules enacted by the BBA, generally effective for partnership years beginning after December 31, 2017, are contained in new or amended Code Secs. 6221 through 6241. The new partnership audit rules repeal the audit rules under the Tax Equity and Fiscal Responsibility Act (TEFRA) (P.L. 97-248). Section 1101(g)(4) of the BBA provides that a partnership may elect for the new audit regime to apply to any of its partnership returns filed for partnership tax years beginning after November 2, 2015, and before January 1, 2018.

A partnership that elects to apply the new partnership audit regime to a partnership return filed for an eligible tax year may not elect out of the new rules under the small partnership exception under Code Sec. 6221(b), as added by BBA A, with respect to that return. In addition, an election, once made, may be revoked only with the consent of the IRS (Temporary Reg. §301.9100-22T(a)).

An election is not valid if it frustrates the purposes of the new audit regime, which include collecting any imputed underpayments that the partnership may be liable for under Code Sec. 6225, as amended by the BBA (Temporary Reg. §301.9100-22T(a)). In addition, an election under the temporary regulations does not apply if the partnership has already applied the TEFRA partnership procedures with respect to the partnership return for that tax year (Temporary Reg. §301.9100-22T(d)(2)(i) and (ii)). This happens when the tax matters partner has filed a request for an administrative adjustment for the partnership tax year under Code Sec. 6227(c) of the TEFRA procedures. Similarly, an election does not apply if a partnership that is not subject to the TEFRA partnership procedures has filed an amended return of partnership income for the partnership tax year (Temporary Reg. §301.9100-22T(d)(2)(iii)).

Generally, an election to have the new partnership audit regime apply must be made when the IRS first notifies the partnership in writing that a partnership return for an eligible tax year has been selected for examination. A partnership that wishes to make an election must do so within 30 days of the date of the notice of selection for examination (Temporary Reg. §301.9100-22T(b)(1)). During the period of at least 30 days after the IRS receives a valid election and before the IRS mails any notice of an administrative proceeding, the partnership may file an administrative adjustment request (AAR) under Code Sec. 6227, as amended by the BBA.

Comments and Request for Hearing

Written or electronic comments and requests for a public hearing must be received by October 4, 2016, and should be sent to: CC:PA:LPD:PR (REG-105005-16), room 5207, Internal Revenue Service, PO Box 7604, Ben Franklin Station, Washington, D.C. 20044. Submissions may also be hand delivered Monday through Friday between the hours of 8:00 a.m. and 4:00 p.m. to: CC:PA:LPD:PR (REG-105005-16), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW., Washington, D.C. 20224, or sent electronically via the Federal eRulemaking Portal at http://www.regulations.gov (IRS REG-105005-16). The public hearing would be held in the Auditorium, Internal Revenue Service Building, 1111 Constitution Avenue, NW., Washington, D.C. 20224.

T.D. 9780, 2016FED ¶47,040

Proposed Regulations, NPRM REG-105005-16, 2016FED ¶49,710

Other References:

Code Sec. 6221

CCH Reference – 2016FED ¶37,955.06

CCH Reference – 2016FED ¶44,037

Tax Research Consultant

CCH Reference – TRC PART: 60,700

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CCHTaxGroup

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