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The IRS has issued two important proposed rules that affect how partnerships handle tax liability following an audit. They are part of a series of rules implementing legislation passed in 2015 that changed the way partnerships are audited.
Beginning in 2018 audits can occur at the partnership level. NMHC/NAA have strongly supported allowing audited partnerships to push out adjustments through multiple tiers of partners. On February 3, the IRS issued proposed rules that address how partnerships and their partners adjust tax attributes to take into account partnership adjustments under the centralized partnership audit regime. Previously, the IRS generally held individuals within a partnership responsible for their share of tax liability.
On December 15, 2017, the IRS issued a proposed partnership audit regulation that addresses how partnerships can push out tax adjustments through multiple tiers of partners following an audit. Under those regulations, each partnership in a tier can elect to either pay any tax adjustment at the entity level or push out that adjustment to its own partners.
NMHC/NAA encouraged the IRS to allow such treatment in an August 11, 2017, letter to agency because multiple-tier push outs help ensure one partner does not become liable for another partner’s tax obligations. Non-compliant partners that do not either pay additional taxes due or push through liabilities to their own partners would remain liable for taxes owed.
More information on how partnerships are taxed and audited can be found here.
Staff Resource
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