Gear up for new partnership rules
No one likes to hear “audit” and “IRS” in the same sentence. But when the rules change, you need to be prepared — and change is definitely what has happened to IRS partnership audit rules. Here’s an overview.
Under the old rules, the IRS audited partnerships using three sets of procedures based primarily on the number of partners. Those procedures have been replaced with a single set of rules that apply to all partnerships. The major change: Under this new approach, adjustments made by the IRS during an audit of a partnership will be applied to the partnership instead of the individual partners. That means your partnership will have to pay any amount due related to the adjustment. Since the tax will be payable in the year the audit is completed, the current partners will bear the burden.
If your partnership is made up of 100 or fewer partners, you can elect out of the new rules when you meet certain requirements. Once you opt out, your partnership and partners will be audited under the rules that apply to individual taxpayers.
The new rules take effect for returns you file for your partnership beginning after 2017, though you can choose to apply many of them for tax years beginning after November 2, 2015.
What do you need to do now? One smart move is to update your partnership agreement to reflect the changes.
Contact us for information. We’ll work with your attorney to make sure you’re in compliance with the new rules.