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Saturday, August 11, 2018

Revisions to Partnership Representative Rules

The IRS has issued final regulations under the new centralized partnership audit regime. This audit regime was enacted in 2015. The rules provide for a partnership to appoint a “partnership representative” to participate in the audit process.

The final regulations generally adopt previously temporary and proposed regulations. Some of the key changes made in the final regulations from the temporary and proposed regulations relating to the partnership representative include:

  • According to the Preamble, a partnership that has elected out of the centralized partnership audit regime is not required to designate a representative – if it does, that representative has no authority with respect to the partnership.
  • A partnership may designate itself as the representative if it meets the substantial presence in the U.S. requirement and designates an individual that has such substantial presence to act on behalf of the partnership.
  • A disregarded entity can serve as partnership representative. The entity must comply with the general entity representative rules to appoint a designated individual to act on its behalf. Both the entity and the designated individual must meet the U.S. substantial presence requirements.
  • The representative need not be an employee of the entity, per the Preamble. Similarly, an entity representative need not have employees.
  • Numerous modifications were made in regard to the changing the the partnership representative, including resignations and appointment of successors.

Remember that LLC’s taxable as partnerships (i.e., most multi-member LLC’s other than those electing to be taxed as a corporation or deemed to be corporations) must also comply with these rules.

T.D. 9839


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