CENTRALIZED PARTNERSHIP AUDIT REGIME:

The IRS has issued final regulations (T.D. 9969), which exclude certain partnership-related items from the centralized partnership audit regime while providing alternative rules that will apply to the examinations of such items. The final regs, effective December 9, 2022, adopt, with revisions, proposed regulations (REG-123652-18) published in November 2020.

BBA

The centralized partnership audit regime was created under the Bipartisan Budget Act (BBA) of 2015. The BBA significantly overhauled auditing and tax collection procedures for large partnerships.

Partnerships that file returns for tax years starting January 2018 must follow rules under the BBA. Partnerships under the BBA must follow certain filing requirements including designating a partnership representative or, if eligible, elect out of the regime on a timely filed return. Under the BBA, the IRS generally assesses and collects any understatement of tax (called an imputed underpayment or IU) at the partnership level. Partnerships may request to modify the IU and may elect to push out the adjustments underlying the IU instead of paying.

Interestingly, a report released earlier this year by the Treasury Inspector General for Tax Administration (TIGTA) revealed that over three quarters of the audits conducted by the IRS under its centralized partnership audit regime resulted in no change in tax liability. The IRS closed 376 (roughly 78 percent) of these partnership returns as a “no-change,” according to the report.

Highlights

A snapshot of key issues addressed in the final regs include:

• Applicability date;
• Adjustments to non-income items;
• When partnerships cease to exist prior to adjustments; and
• Special enforcement provisions.

The IRS’s BBA Centralized Partnership Audit Regime webpage containing helpful information and other applicable regulations can be located HERE.