Client Alert: IRS Proposes Controversial Changes to Partnership Audit Rules

The IRS recently proposed controversial changes to the partnership audit rules to address special enforcement matters. The proposed regulations allow the IRS to avoid the statute of limitations rules applicable to partnership adjustments and make adjustments to partnership-related items outside of the centralized partnership audit regime. In addition, the proposed regulations reverse the IRS’s prior position and provide that partnerships with a qualified subchapter S subsidiary (QSub) as a partner will not be able to elect out of the centralized audit regime.