US - Partnership audit rules

Published: 05 March 2018

The US Internal Revenue Service (IRS) has issued proposed regulations for the new partnership audit regime. These would apply to partnerships with taxable years beginning on or after 1 January 2018.

The new audit regime, in addition to making the partnership liable for partners’ underpaid tax (subject to a “push out” election),  imposes a number of administrative changes including a requirement to appoint a US based partnership representative.

The partnership representative will have substantial authority during partnership examinations, and its actions will be binding on the partnership and the partners. It does not need to be a partner but must have a substantial presence in the US. If the representative is an entity, the partnership would be required to appoint and identify an individual to act on the entity’s behalf.

Initial indications are that non-US partnerships may have difficulty in identifying a third party willing to act as partnership representative, due to the responsibilities and powers that the role confers. Partnerships which are subject to tax audit in the US should consider amending their partnership agreements to designate a partnership representative and to clarify the ability to make a “push out” election.

For further information, please contact Paul Hale or Anvit Jain.