The IRS has released new proposed regulations governing the centralized partnership audit regime. These regs replace some existing proposed rules to reflect changes made by the Tax Technical Corrections Act of 2018 (TTCA, P.L. 115-141). The new proposed regs also provide some additional clarifications.
The TTCA generally used “partnership-related items” instead of “items of income, gain, loss, deduction, or credit of a partnership.” These changes clarified that the centralized partnership audit regime is not intended to be narrower than the TEFRA partnership audit procedures.
The new proposed regs reflect these changes with respect to the:
- scope of the centralized partnership audit regime, and
- requirement for a partner’s return to be consistent with the partnership’s.
The new proposed rules incorporate several changes TTCA made to the rules for imputed underpayments. These include:
- adjustments arising from partnership-related items;
- how to net adjustments;
- determining the amount of an imputed underpayment;
- adjustments that reallocate distributive shares among partners;
- modifications to adjustments rather than to underpayments; and
- amended returns to reflect adjustments;
- assessment, collection and payment of imputed underpayments;
- related interest and penalties;
- required jurisdiction deposit for judicial review of the final partnership adjustment (FPA).
In addition, the new proposed regs make some technical changes that are unrelated to TTCA to clarify the Code Sec. 6226 election for the partners to take the adjustment into account.
Administrative Adjustment Requests
Additionally, the new proposed regs reflect several changes in the procedures for a partnership to file an administrative adjustment request (AAR). These changes relate to:
- partnership-related items;
- when the partnership takes the adjustment into account; and
- coordination of the adjustment rules and the imputed underpayment rules.
The new proposed regs also make some changes unrelated to TTCA, including:
- coordinating the AAR rules with revoking the designation of a partnership representative;
- withdrawing a notice of administrative proceeding (NAP); and
- rules for passthrough partners.
Moreover, the new proposed regs reflect TTCA changes on the timing of a notice of any proposed partnership adjustment (NOPPA) resulting from an administrative proceeding, and a notice of any final partnership adjustment (FPA).
In addition, the new proposed regs clarify the limitations period for making adjustments.
Finally, the new proposed regs incorporate technical TTCA changes in:
- several definitions and special rules,
- coordination of the centralized partnership audit regime with other provisions of the Code,
- special enforcement considerations, and
- shareholders in controlled foreign corporations.
A public hearing is scheduled at the IRS Building at 10 a.m. on October 9, 2018.
The IRS must receive any written or electronic comments, as well as an outline of topics for discussion at the hearing, by September 27, 2018. These comments may be mailed or hand-delivered to the IRS, or submitted electronically via the Federal eRulemaking Portal at www.regulations.gov (IRS REG-136118-15).
Effect on Other Documents
The new proposed rules withdraw and replace portions of the following proposed regulations:
- REG-136118-15, published in the Federal Register on June 14, 2017,
- REG-119337-17, published in the Federal Register on November 30, 2017,
- REG-120232-17, published in the Federal Register on December 19, 2017,
- REG-120233-17, published in the Federal Register on December 19, 2017,
- REG-118067-17, published in the Federal Register on February 2, 2018.
However, the preambles of these withdrawn proposed regs are generally incorporated by reference into the preamble for the new proposed regs.