Lee Meyercord Quoted on New Partnership Audit Rules

Posted by Lee Meyercord and Mary McNulty              Lee Meyercord was recently quoted in a Tax Notes Today article (subscription required) and a Bloomberg Law article (subscription required) on her testimony at the IRS hearing on the proposed partnership audit regulations.  Meyercord testified at the IRS hearing on behalf of the Tax Section of the State Bar of Texas as a coauthor of the Tax Section’s comments letter on the proposed partnership audit regulations.  Mary A. McNulty, Past Chair of the Tax Section and member of the Past Chair Advisory Board, reviewed the letter and provided substantive comments. Among other things, Meyercord was quoted about the potential unlimited statute of limitations on partnership adjustments under the new rules.  Section 6235(a) provides the period of limitations on making partnership adjustments under the new regime and allows the IRS to make adjustments as long as one of three periods is open.  Two of the periods are based on the date the IRS issues a notice of proposed partnership adjustment (“NOPPA”).  Because the statute and proposed regulations do not provide a time period in which the NOPPA must be issued, the implication is that the IRS could issue a NOPPA and revive an otherwise closed statute of limitations.Meyercord suggested that the final regulations require the IRS to issue the NOPPA within three years of the date a partnership return is due or filed, whichever is later.  This would protect the general three-year statute of limitations.  Once the NOPPA is issued, the partnership can then request modifications to the imputed underpayment for 270 days or such later date as extended with IRS consent.  If the partnership does not request modifications, the IRS will have at least 60 days after the 270-day period (as extended) expires to make any adjustments.  If the partnership does request modifications, the IRS will have at least 270 days after the 270-day period (as extended) expires to make any adjustments.  The IRS could have more time if the three-year period in Section 6235(a)(1) is still open after the 60-day or 270-day period expires because the IRS can make adjustments as long as one of the three periods in Section 6235(a) is open.The proposed regulations are available here and are summarized in a prior post available here.  If you have any questions about the proposed regulations or partnership audits, please contact one of us or any of the other Tax lawyers at Thompson & Knight.