How Not to Get Crushed By Income Tax Collections from a Partnership

Author: Bradley Burnett

Centralized Partnership IRS Audit Rules (CPAR): Every Partnership (and LLC) Must Make a Stand and Other Freight Train Stories

Effective in 2018 (coming like a freight train), TEFRA partnership IRS audit rules are axed and a whole new regime kicks in. Partnerships may now be liable for income tax at 37%. IRS exams of partnerships will increase and become much more deadly. Do these new “tax procedure” rules spell the beginning of the end for partnerships as we know them? Escape routes are available, but not for all. Advance planning is a must to avoid train wrecks of colossal proportion.

Publication Date: January 2019

Designed For
Anyone who works with partnerships from a planning or compliance perspective. Anyone who owns a partnership interest and cares to not be devastated by IRS’ extraordinarily broad new powers.

Topics Covered

• IRS Audit Stats
• IRS's Struggle to Audit Tiered Partnerships
• IRS' Problem / Congress' Solution
• Centralized Partnership Audit Rules (CPAR)
• Prior Law: 3 Partnership Audit Regimes
• CPAR Replaces 3 Audit Regimes With 1
• CPAR Roadmap
• Effect of New CPAR Rules
• CPAR — Default Rule
• CPAR — Example of 2018 Audit
• CPAR — Highway and Exit Ramps
• Imputed Underpayment — End of the Highway
• Imputed Underpayment — Avoid it like the plague (almost every time)
• Exit Ramp 1: Partnership "Elects Out" of CPAR
• Exit Ramp 2: Partners "Amend Out" or "Pull In"
• Exit Ramp 3: Partnership Elects "Push Out"
• Modification of Imputed Underpayment
• Imputed Underpayment ‐ Modification
• CPAR Highway — Flow of Procedure
• Partnership Representative
• Agreements Affected by CPAR
• State Conformity (or Not) with CPAR
• Appendix: State Conformity (or Not) with CPAR

Learning Objectives

• Recognize how to advise partnerships to posture to sidestep and mitigate the harsh new effect of IRS dramatically broadened audit powers
• Identify how to prevent a partnership (or LLC) from becoming a strange new beast taxed at least in part as a C corporation
• Describe correct statements regarding IRS Audit statistics related to partnerships
• Differentiate how the new Centralized Partnership Audit Rules (CPAR) apply
• Describe which IRS form an entity which seeks to elect out of the CPAR requirements entirely may do so
• Identity correct statements with respect to CPAR requirements
• Recognize how to prepare for CPAR
• Recognize advantages to a partnership of the "amend out" or "pull in"
• Differentiate between the "amend out" or "pull in" procedure exit ramps
• Identify each of the exit ramps with respect to CPAR requirements
• Identify IRS Audit Stats and how they apply to partnerships
• Describe imputed underpayment if a partnership elects out of CPAR
• Recognize what happens if a partner elects the amend out procedure
• Identify a characteristic of an intervening year

Level
Basic

Instructional Method
Self-Study

NASBA Field of Study
Taxes (3 hours)

Program Prerequisites
None

Advance Preparation
None