Partnership Representatives
By Congress adopted new partnership audit rules as part of Bipartisan Budget Act of 2015 (“BBA”), replacing the Tax Equity and Fiscal Responsibility Act of 1982 (“TEFRA”). As part of that change, the role referred to as the tax matters partner has been replaced by the partnership representative.
The partnership representative can take a number of actions on behalf of the partnership, including (i) entering into a settlement agreement; (ii) agreeing to a notice of final partnership adjustment; (iii) requesting modification of an imputed underpayment; (iv) extending the modification period; (v) waiving the modification period; (vi) agreeing to adjustments and waiving the final partnership adjustment; (vii) extending the statutory periods for making adjustments; and (viii) making a push out election.
Section 6223(a) provides a partnership may designate a partner (or other person) with a substantial presence in the United States as the partnership representative. That is a departure from the TEFRA rules, which required the tax matters partner be a partner in the partnership. Under the BBA, any person can be appointed the partnership representative provided it has a substantial presence in the United States. Reg. § 301.6223-1(b)(1) clarifies that “person” includes wholly-owned entities disregarded as separate from its owner for federal tax purposes and the partnership itself. However, pursuant to Reg. § 301.6223-1(b)(3), when an entity serves as the partnership representative, a person who is an individual must be appointed as the designated individual. A designated entity must meet certain requirements, including having a substantial presence in the U.S.
Reg. § 301.6223-1(b)(2) explains a person has substantial presence in the US if (i) the person makes itself available to meet in person with the IRS in the U.S. at a reasonable time and place as determined by the IRS in accordance with Reg. § 301.7605-1; and (ii) the person has a U.S. taxpayer identification number, a street address in the U.S., and a telephone number with a U.S. area code.
If a partnership fails to appoint a partnership representative properly, Reg. § 301.6223-1(f)(5) provides the IRS the power to appoint the partnership representative. The IRS in such case must consider certain factors, including (i) the views of the partners having a majority interest in the partnership; (ii) the general knowledge of such person in tax matters and the operation of the partnership; (iii) the person’s access to the books and records of the partnership; (iv) whether the person is a U.S. person; and (v) the profits interest of the person if it is a partner. Reg. § 301.6223-1(f)(5)(iii) generally prohibits an IRS employee, agent, or contractor from being appointed by the IRS as a partnership representative.
John G. Hodnette is an attorney with Fox Rothschild in Charlotte.