Partnership returns filed for tax years beginning on or after January 1, 2018 will now be subject to the Central Partnership Audit Regime.
What is this? It changes how adjustments are applied when a partnership is audited. Under the new rules, a partnership will name a ‘Representative’ instead of a ‘Tax Matters Partner’. The ‘Representative’ has sole authority to sign off on the audit regardless of how it might affect individual partners on their personal returns. If adjustments are made to the partnership return during an audit the adjustments and any additional tax due are paid at the partnership level instead of at the partner level. This could create a higher amount of tax due than if adjustments were handled at the individual partner level.
Can you opt out? Yes. This will allow your partnership to fall under the old audit rules. We suggest that our client Partnerships ‘Opt Out’ of the Central Partnership Audit Regime when filing your partnership tax return. It would be a good idea to amend your partnership operating agreement, as well, to document this election.