Partnership agreements should be reviewed to ensure compliance with BBA

Partnership agreements should be reviewed to ensure compliance with BBA
The Internal Revenue Service (IRS) recently re-released proposed regulations implementing the centralized partnership audit regime, which was enacted on November 2, 2015 as part of the Bipartisan Budget Reduction Act of 2015 (BBA).

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The proposed regulations are expected to be finalized relatively quickly after a public hearing on September 18, 2017 in Washington, D.C. Because the proposed regulations are extensive, we recommend that every LLC and partnership agreement be reviewed and amended prior to January 1, 2018 to ensure compliance.

As background, the BBA repeals the Tax Equity and Fiscal Responsibility Act Audit Rules (TEFRA), which generally applies to partnerships with more than 10 partners. Under the proposed regulations, the rules regarding audits of limited liability companies, or LLCs, and other entities taxed as partnerships for Federal income tax purposes would be revised. The regulations would be effective for partnership tax years beginning after December 31, 2017.

The general rule under BBA is that taxes resulting from audits and tax proceedings would be assessed at the partnership level. The tax would be calculated at the highest marginal tax rate, regardless of the tax rates of any of the partners.
Operating agreements should address how calculated taxes and penalties will be allocated between partners in the adjustment year and partners in the reviewed year, to reflect any differences in ownership.

Under BBA, the partnership/LLC is represented by its “partnership representative.” This role replaces the tax matters partner under TEFRA. The partnership representative must be stipulated in the operating agreement.

In general, all LLC and partnerships required to file a Federal income tax return are subject to these new audit rules for tax years beginning on or after January 1, 2018. However, certain “eligible partnerships” may elect out of the centralized partnership audit regime.

Please contact your WK advisor at (573) 442-6171 or (573) 635-6196 to discuss how the proposed regulations will affect your partnership.

MISSOURI SALES TAX UPDATE: DELIVERY CHARGES. On July 5, 2017, Missouri Governor Eric Greitens signed into law Senate Bill 16, which exempts from Missouri sales and use tax “usual and customary” delivery charges that are stated separately from the sale price of retail sales.
IRS OFFERS TAX RELIEF FOR RESIDENTS, BUSINESS OWNERS OF STORM-AFFECTED COUNTIES IN MISSOURI. The Internal Revenue Service (IRS) has announced that tax relief is available for individual and business filers in the aftermath of recent storms and flooding that affected several counties in Missouri.
HOW PLAN SPONSORS CAN MINIMIZE PENALTIES IN A DOL AUDIT. Certain employee benefit plans (EBPs) are required to undergo financial statement audits in order to file the annual Form 5500. WK performs many financial statement audits of employee benefit plans. However, plan sponsors should also beware of another kind of audit: The Department of Labor (DOL) audit. A DOL audit covers some of the same aspects as a financial statement audit but generally goes into much more detail.

Posted 7-27-2017 | Topics: Client Alerts, News,