The IRS introduced a new set of partnership auditing rules which take effect in the financial year 2018 and are meant to make it easier for the agency to uncover and collect underpaid taxes from partnership entities. The previous audit system was challenging for the IRS because it was difficult to pin down who owed the tax under a complex partnership structure.
Small partnerships with less than 100 members can opt out if no partner is a pass-through entity.
The IRS will begin reviewing tax filings in line with the new procedure in 2019, so audits could start as soon as 2020.
When a partnership underpays its taxes, the leftover bill has to be dealt with by a designated individual. If a partnership fails to make that designation, the IRS will select one on its behalf. Designating a representative to deal with the IRS if and when an audit arises could benefit partnerships from having the IRS select one for them. The IRS promised that it won’t designate its own employees, agents, or contractors.
A partnership without a designated representative may end up relying on outside legal counsel to contact what could be hundreds of partners to determine the needed tax adjustments. Re-evaluating a partnership agreement that has been working all this time is hard to sort out, but it comes down to the potential cost in legal fees in sorting the issue that could possibly come up down the road.
To discuss your situation under the new audit regime, please contact Wright Ford Young & Co. at (949) 910-2727 or email@example.com
© Copyright 2019. All rights reserved.