Sample Letter Regarding New Partnership Audit Rules

November 15, 2017


Partnership and LLC Clients:

Effective January 01, 2018 the IRS will be implementing new Audit Rules for any entity treated as a partnership. Under the old rules the IRS would apply any audit changes to the existing partners/members of the company and in turn the partners would amend their tax returns to reflect these changes.

Under the new rules the IRS will apply the changes directly to the partnership/LLC itself and the partnership/LLC will have to pay the tax and interest due at the Highest Individual Rate. Any partnership/LLC with 100 or fewer partners may elect out of these new rules on an annual basis. Hence, if audited you would have the old rules apply where the individual partners/members would amend their personal taxes to reflect the changes from the Audit.

Partnerships/LLC will no longer have a Tax Matters Person but now must Designate a Partnership Representative {“PR”}. You should consult with your company attorney and update the companies operating agreement to reflect the following:

  • Designating, or method of designating, the PR
  • Establishing if the PR should elect to have the partnership pay the tax or pass the adjustments through, or guidance on how that determination will be made; and
  • Determining whether former partners will be mandated to pay taxes on adjustment or whether they are relieved of that liability when they leave the partnership.

Thank you for your attention on this matter. Please direct any questions to our office or your attorney.

Respectfully,
Allan J Reynolds, EA
ABC Bookkeeping & Tax Services, Inc

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