Mary McNulty Quoted in Law360 on New Partnership Audit Rules

“New Audit Rule Limits Tax Discharges By Partnerships”

A new rule forcing partnerships to declare they won’t voluntarily file for bankruptcy as a prerequisite for electing a revamped tax audit regime is being billed by experts as an unexpected move by the Internal Revenue Service to prevent the new regime from being abused to avoid tax liabilities.

However, Mary McNulty of Thompson & Knight LLP pointed out that the proposed rules fail to say what the consequences of breaching those representations are.

“It’s certainly a way that the government is trying to protect itself from … a partnership electing into the new rules and not having the assets to pay the partnership-level assessment,” McNulty said.

Another unexpected move by the IRS was to tie filing an administrative adjustment request, or an AAR, to the decision to choose the new audit scheme before 2018, McNulty said.

Partnerships have 30 days from the time they receive notice of an audit to decide if they want to opt in to the new regime, and if they do opt in, they will have at least another 30 days to file an AAR, according to the proposed rules.

This change is favorable and provides “additional flexibility for partnerships” that want to file an AAR for tax years before 2018, McNulty said.