Posted by Mary McNulty and Lee Meyercord President Obama’s fiscal year 2016 budget proposal (available here) would repeal TEFRA and the electing large partnership audit rules. The proposal would enact new audit rules that apply to a partnership that has 100 or more direct partners or that has at least one partner that is a passthrough partner.Under these rules, partnership audit adjustments would flow through to the direct partners in the year to which the adjustment relates. The additional tax due as a result of the adjustments would be assessed and collected from the direct partners, except that passthrough partners would be required to pay the tax on behalf of their partners. This approach is similar to an approach suggested by the IRS’s Chief Counsel William J. Wilkins.In addition, the proposal would reduce partners’ participation in a partnership audit by:Eliminating the current requirement to provide notice to partners of the beginning of an administrative proceeding or of a final administrative adjustment (instead the IRS would only be required to notify the partnership of partnership adjustments); Providing that only the partnership (not the partners) may participate in the audit through the partnership’s authorized representative; andProviding that only the partnership may request a refund. For partners in a partnership that has less than 100 direct partners and no passthrough partners, each partner’s share of partnership items would be determined in a separate partner-level proceeding. If you have any questions about the budget proposal or partnership audits, please contact one of us or any of the other Tax lawyers at Thompson & Knight.