The Centralized Partnership Audit Regime – An Overview

(58 Ratings)

Produced on: September 15, 2016

Course Format On Demand Audio

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Course Description

Time 62 minutes
Difficulty Beginner

Entities treated as partnerships for U.S. federal tax purposes generally are considered "flow through" entities, in that the entity itself does not pay tax.  Rather, the ultimate owners of the entity are required to report and pay tax on their distributive share of all items that flow through from the partnership. Under current law, most such entities are subject to a set of rules enacted in 1982 that govern how any tax audits and litigation matters will be handled. Generally speaking, the IRS audits partnerships at the entity level, working through a "tax matters partner," but any resulting tax adjustments are then collected by the IRS from the ultimate partners. Most partnership agreements have detailed provisions addressing the rights and responsibilities of the partners under these rules.

In November 2015, Congress enacted legislation that repeals the existing partnership audit and litigation rules, and replaced those rules with a new centralized  partnership audit regime. These changes are effective for tax returns filed for partnership tax years beginning after December 31, 2017. However, the legislation authorizes the Treasury Department to provide regulations permitting partnerships to elect into the new regime for earlier periods.  

In this course, attorneys Armando Gomez and Pamela Endreny of Skadden address the changes under the new centralized partnership audit regime. For example, the IRS will audit partnerships at the entity level, and will be able to collect any resulting tax directly from the partnership in the year when the audit or litigation is finally concluded. Thus, the partners at the time that the IRS collects will be the ones who bear the economic burden of the tax adjustments, even if they were not partners in the partnership for the earlier periods that were audited by the IRS. The new regime does provide several potential options for partnerships to mitigate this approach, including an election for certain partnerships to elect out of the new regime or to "push out" any tax adjustments to the partners from the earlier period that was audited.


Learning Objectives:

  1. Identify the key definitions and basic parameters of the new centralized partnership regime
  2. Understand the potential elections that partnerships and partners might want to consider under the new regime
  3. Recognize some of the key areas that the Treasury Department and the IRS will need to address through regulations or other guidance
  4. Gain insight on essential points to consider including in partnership agreements and other documents for new and existing partnerships

Faculty

Pamela Lawrence Endreny

Skadden, Arps, Slate, Meagher & Flom LLP

Pamela Lawrence Endreny represents clients in a range of federal income tax matters, including domestic and international mergers, acquisitions, joint ventures, spin-offs, financings and restructurings. She has particular experience in transactions involving publicly traded partnerships (PTPs), master limited partnerships (MLPs), real estate investment trusts (REITs), regulated investment companies (RICs), structured finance and derivatives. She advises on the formation and operation of private equity and hedge funds and their investments, as well as transactions involving fund managers and sponsors. She has obtained private letter rulings from the Internal Revenue Service on spin-offs and other transactions and has represented clients in tax controversies with the Internal Revenue Service.

She regularly advises on tax reporting, disclosure and withholding requirements, including foreign bank account reporting (FBAR) and the Foreign Account Tax Compliance Act (FATCA). She has advised financial institutions, asset managers and others on cross-border tax controversies and compliance issues, including representation of Swiss banks participating in the Department of Justice settlement program. Her experience includes developing policies and guidelines and leading training programs for financial institutions with respect to tax reporting, disclosure and compliance.

She is a co-author of the private equity treatise, "Private Equity Funds: Business Structure and Operations."

Armando Gomez

Skadden, Arps, Slate, Meagher & Flom LLP

Armando Gomez concentrates his practice on a broad range of tax matters that encompass transactional and planning situations, as well as tax controversies.

In recent years, Mr. Gomez has represented developers and investors in connection with various renewable energy projects. He also advises clients on the structuring and financing of other partnerships and joint ventures. In addition, he counsels on valuation and transfer pricing matters, at both the planning and controversy stages.

Mr. Gomez represents clients in federal and state tax controversy matters, including in connection with examinations, administrative appeals and special programs designed to reach expedited results, and in litigation before the United States Tax Court. He has advised clients in summons enforcement matters and in criminal tax investigations, and he also has acted as special tax counsel in connection with internal investigations on tax-related matters.

Mr. Gomez represents clients in administrative and policy matters before the U.S. Department of the Treasury and the Internal Revenue Service, including commenting on regulations, tax treaties and other tax policy issues, and in connection with applications for private letter rulings.

He advises clients on legislative matters, including commenting on proposed legislation, developing strategies for new legislative proposals and representing clients before the congressional tax writing committees. He also represents clients in connection with congressional investigations, including in the largest-ever congressional investigation of a single corporate taxpayer.

Mr. Gomez served as the chair of the American Bar Association’s Section of Taxation from 2014-15. He is a fellow of the American College of Tax Counsel, co-chair of the National Conference of Lawyers and Certified Public Accountants and a member of the American Bar Association House of Delegates. Mr. Gomez frequently lectures on topics relating to partnerships and joint ventures, tax controversies, and tax administration matters.

Mr. Gomez repeatedly has been selected for inclusion in Chambers USA: America’s Leading Lawyers for Business and The Best Lawyers in America. He was named a “Tax Controversy Leader” in the International Tax Review’s 2015 Leaders Guide and also was included in Washingtonian Magazine’s 2013 and 2015 “Best Lawyers” list.


Reviews

CC
Charles C.

Very interesting perspective of the speakers with regards to the IRS and I agree with them!

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