The Internal Revenue Service reissued proposed regulations concerning the new centralized partnership audit regime. The regulations, which would implement a Bipartisan Budget Act of 2015 provision on partnerships audits, were first proposed in January 2017 but were not published in the Federal Register. Under the centralized partnership audit regime, taxes on partnership income generally would be assessed and collected at the partnership and not the partner level.

The regulations delineate the following aspects of the centralized partnership regime:

  • guidelines for eligible partnerships on opting out of the regime;
  • important rules and procedures, including a requirement to designate a partnership representative with sole authority to act on behalf of the partnership; and
  • the range and extent of items that are subject to the regime, including (i) "any adjustment to items of income, gain, loss, deduction, or credit of a partnership for a partnership taxable year" and (ii) the "applicability of any penalty, addition to tax, or additional amount which relates to an adjustment to any such item."

On September 18, 2017, the IRS will hold a public hearing in order to discuss topics relevant to the proposed regulations. Public comments must be received by August 14, 2017.

Commentary / Mark Howe

With their actual publication in the Federal Register, these proposed regulations under the Bipartisan Budget Act – unlike the 385 and, possibly, the 871(m) regulations – are not likely to be significantly changed by the Trump Administration. The proposed regulations are broad in scope and narrow in their exceptions, and the affected funds industries will need to look to the Technical Corrections Act of 2016 for additional relief.

It is now time for hedge funds and other types of investment funds to review their partnership agreements and subscription agreements, particularly with respect to designating any partnership representative and indemnifying that representative as broadly as possible (given the powers vested by the IRS in the representative).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.