New Partnership Audit Rules | LLC Tax Solutions

New Partnership Audit Rules

AICPA Has Concerns About New Partnership Audit Rules 

            Fred Witt, J.D., LL.M. (in taxation)

I. Introduction

For tax year 2018, every multi-member LLC taxed as a partnership must comply with new IRS partnership audit rules. With the filing of IRS Form 1065 due on March 15 – just around the corner – what are tax return preparers to do regarding the new audit rules?

The problems compound. If an operating agreement names a “tax matters partner,” it is obsolete.

Do they mention them? When? How do they make sure they get the new required information from LLCs on a timely basis? More questions, than answers, to be sure!

II. In 2018, Multi-Member LLCs Taxed as Partnerships Must Comply with New BBA 2015 IRS Tax Rules

There are new IRS partnership audit rules that apply to multi-member LLCs taxed as partnerships. The old TEFRA rules requiring a “tax matters partner,” are gone.

For 2018, an LLC’s operating agreement should answer the following questions:

  1. Who is authorized to sign its annual IRS Form 1065 (due on March 15); and
  2. Who will be designated as the “Partnership Representative” on that return for the tax year covered by the return?

How can a tax partnership LLC provide this detailed information on its 2018 IRS Form 1065 without specific written authorization set forth in the LLC’s operating agreement?

How can this designation occur without newly-drafted, specific written authorization in the operating agreement? We have the answer to this question.

Our online form store – www.taxllc.com – offers new LLC operating agreement forms for sale that are updated to reflect the new BBA 2015 IRS tax rules. With the ease of computer access, a purchaser instantly downloads our forms as a Word document. Then, you can use the document or “cut and paste” any portion you want. We also offer unique “tax only” exhibits that can be attached to an operating agreement.

We offer an easy solution to a complex problem. Check out www.taxllc.com for more details. Help is just a click away! Problem solved!

III. For CPA’s Preparing Partnership Tax Returns Due March 15, What Should They Say to Clients?

Do tax return preparers mention these new rules to clients? If so, do they describe the new rules and then recommend the LLC client review the operating agreement with an attorney? What should CPA’s put in their engagement letters?

With new rules, new language will need to be added to the operating agreement. Tax preparers will need a copy for their file.

IV. Conclusion

Whether you own or advise a multi-member LLC taxed as a partnership, the operating agreement must updated to reflect these IRS tax changes. The new IRS partnership audit rules apply to multi-member LLCs taxed as partnerships in 2018. New information must be provided on IRS Form 1065 to be filed on March 15, 2019.

Update the operating agreement now! Or, add one of our “tax only” exhibits to an existing operating agreement. Check out www.taxllc.com for more details.

Disclaimer: This material is provided for general information only and is not legal, financial or tax advice. Please consult with your own legal or tax advisor before making any decisions concerning your business or financial matters.