New Rules for Partnership Audits

The IRS has laid out new audit rules which take effect on January 1, 2018. These rules are now applicable to all entities taxed as partnerships, unless the owners opt out. 

The new audit rules will apply and, in this case, any additional assessment of tax, penalties or interest from an audit, will be the responsibility of the partnership and not individual partners. The highest federal income tax rates (currently 37 percent) will be applicable if any tax results from the audit at the time of assessment, which will be applied to the year the audit is completed, irrespective of any changes in ownership.  

Yes, the new audit rules really stink.  This rule is designed to collect assessed taxes from the partnership directly without having to wait to collect the taxes from the partners.  

However, there is a method of opting out of these rules. By making an election on the partnership return, the adjustments can be pushed out to the partners who will then report the changes increase in income on their personal tax returns in the year they receive the adjustments.

There are eligibility requirements to opting out of this draconian rule.

If you would like more or need help with tax planning for partnerships, contact our office at 909-217-7855 and let us help ease your burden.