The IRS issued final regulations that govern the designation, authority, and replacement of a partnership representative under the centralized partnership audit regime. The regulations make a number changes to prior proposed regulations. They generally apply to tax years beginning after December 31, 2017.
Eligibility for Partnership Representative
The final regulations clarify that:
- a disregarded entity can serve as a partnership representative; and
- a partnership may designate itself as its own partnership representative.
In either case, the entity must have substantial presence in the United States. The entity must also appoint a designated individual that has a substantial presence in the United States to act on the entity’s behalf as partnership representative.
In addition, the final regulations remove the capacity-to-act requirement contained in the proposed regulations. This is because the partnership should have as much flexibility as possible in determining a partnership representative.
Changing the Partnership Representative
The final regulations allow the partnership to change the partnership representative when the IRS notifies the partnership that its return has been selected for examination as part of an administrative proceeding. The partnership may also make the change when the IRS mails it a notice of administrative proceeding.
In contrast, under the proposed regulations a partnership could not change the partnership representative until it received the notice of administrative proceeding.
Resigning Partnership Representative
The final regulations no longer allow a resigning partnership representative or designated individual to designate a successor. They also do not allow the partnership representative to resign when the partnership files an administrative adjustment request. This is because it is unfair to the partnership to allow a resigning partnership representative to ask the IRS to adjust partnership items.
Among the additional changes contained in the final regulations are changes to:
- the ability to revoke partnership representative status;
- the effective date of a revocation or resignation of a partnership representative;
- notification requirements for resigning partnership representation or revocation of partnership representation designation; and
- IRS designation of a partnership representative.