The IRS on February 15 issued final regulations (T.D. 9844) that implement the centralized partnership audit regime that now governs partnership audit procedures. Centralized Partnership Audit Regime: The new rules are aimed at increasing the rate of partnership audits by reducing the challenges facing the IRS under TEFRA. The scope of the new regime includes all items required to be shown on the partnership return, including adjustments to items of income, gain, deduction, loss or credit, and each partner’s distributive share thereof. Additionally, in a departure from the TEFRA regime, which traditionally passed through items of income and loss to investors, the new regime places the liability on the partnership, which will now be liable for the tax in the year an adjustment is made. The tax is assessed at the highest tax rate in effect at that time for the particular item. Additionally, there are mandatory consistent reporting requirements, partnership level proceedings, and a requirement to designate a representative for proceedings. It is anticipated that state and local revenue agencies will adopt similar rules as they issue updated guidance. The final regulations affect partnerships for tax years beginning after December 31, 2017, and ending after August 12, 2018, as well as partnerships that elected to apply the centralized partnership audit regime to partnership tax years beginning on or after November 2, 2015, and before January 1, 2018. They will be effective upon their official publication in the Federal Register, which is scheduled for February 27. (The IRS had posted the regulations to its website in December, just before the partial federal government shutdown.) Under the centralized audit regime, tax is generally determined, assessed, and collected at the partnership level. It was enacted by the Bipartisan Budget Act of 2015, P.L. 114-74, and amended by the Protecting Americans From Tax Hikes Act of 2015, P.L. 114-113, and the Tax Technical Corrections Act of 2018, part of the Consolidated Appropriations Act of 2018, P.L. 115-141. It replaces the former partnership audit procedures implemented by the Tax Equity and Fiscal Responsibility Act of 1982, P.L. 97-248. The regulations finalize portions of proposed regulations issued last August (REG-136118-15) with a number of changes in response to comments received in writing and at a hearing on Oct. 9. The comments are discussed in depth in the 255-page preamble to the final regulations. The IRS also noted that it had already issued final regulations on partnership representatives and opting out of the centralized regime.