The Bipartisan Budget Act of 2015 has strengthened the IRS’s ability to audit partnerships, including multi-member LLCs. The new rules apply to tax years beginning after 2017, and will apply to partnerships of 100 or more partners. To prepare for these changes, Partnerships should amend their Partnership Agreements and select a “Partnership Representative” – a sole contact individual with the IRS auditor and someone authorized to make all decisions regarding how to handle an audit. The Partnership Representative does not need to be a partner of the entity.
The new rules require the IRS to assess the partnership if filing errors are detected during an audit. The Partnership Representative will then be responsible to determine whether the partnership itself (the current partners, indirectly), or those who were partners during the audit period, should pay the assessment. The Partnership Representative will also be able to determine whether the entity could opt-out of the new rules; if it has 100 or fewer partners, individuals, S corporations, C corporations, or estates of deceased partners. If you have an S corporation partner, then you must count each of its shareholders for this purpose. If a Partnership Representative is not designated by the entity, the IRS reserves the right to appoint one for the entity.
Partnerships should begin planning for 2017 today by determining:
- Who will serve as the Partnership Representative
- The level of indemnification they will receive against any costs or liabilities that may be incurred in that role
- The level of accountability they will have to the company and its partners
About Oakstone Law, PL
Oakstone Law PL was founded by Bob Kleinknecht. A member of the Florida Family Trust Company Subcommittee, the Estate Tax & Trust Planning (ETTP) Committee and the Real Property, Probate & Trust Law (RPPTL) Section of the Florida Bar, Kleinknecht has 15 years’ experience.
Prior to founding Oakstone law, he spent more than eight years serving as a personal, in-house estate, tax and charitable planning attorney for a Forbes 400 family in New York and Florida. Before that he was an estate planning and estate settlement attorney with prominent firms in Boston and Washington, D.C. after beginning his career with a boutique firm in Naples, Florida.
Licensed in Florida and Massachusetts, Kleinknecht has developed a practice model that eliminates billing by the hour and offers a streamlined, customized client process supported by technology, security and a personal approach.