New Partnership Tax Audit Procedures
On November 2, 2015, President Obama signed into law the Bipartisan Budget Act of 2015 (the “Budget Act”), which includes significant changes to the rules governing partnership tax audits for taxable years beginning in 2018. The changes generally impose liability for audit adjustments on the partnership itself, rather than the persons who were partners in the audited year, unless the partnership makes an election as described below. Absent an election, the partnership will be subject to additional tax from audit adjustments, even though partnerships are not generally subject to tax at the entity level, and thus the current partners will indirectly bear the tax instead of the partners from the relevant audited year. We expect many partnerships will elect out of this new treatment.