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Questions about new IRS rules for partnership audits

New rules for audits contained in the Bipartisan Budget Act of 2015 will become effective on Jan. 1, 2018, but officials at the Internal Revenue Service acknowledge that procedural questions still need to be settled. Business partnerships in Maryland therefore could face uncertainty in the face of an audit because of insufficient guidance about the appeals process or push-out elections to transfer tax liabilities to specific partners.

Tax practitioners have expressed worry about the omission of an appeals process within the new regulations. An attorney advising the Department of Treasury's Office of Tax Policy said that the agency was developing an appeals process.

Other concerns about the new auditing rules include questions about push-out elections. This procedure enables a tiered partnership to single out individual partners for unpaid tax liabilities. Some attorneys and accountants have suggested that the regulations should shift tax adjustments to the final partner within a tiered structure. Final guidance on these technical issues appears to be in limbo. A corrections bill needs to be introduced in Congress again, but the passage of corrective legislation appears unlikely before the new rules become effective.

Being audited naturally raise concerns among stakeholders in a business. At a minimum, they might require filing amended returns, or, at worst, paying unexpected taxes. An attorney could recommend strategies for an audit defense to a business partner. Initially, a legal adviser could interpret letters from tax agencies and help comply with document requests. An attorney could organize the entity's financial records and be present during a review by auditors.

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