“WHAT TO EXPECT FROM THE PARTNERSHIP AUDIT CHANGES”
The mechanical rules governing how adjustments flow through multitiered entities will be an important component of guidance under section 6226 regarding the alternative to payment of the imputed underpayment by the partnership. “There are a lot of uncertainties as to how exactly the tax flows through the tiers,” said Mary A. McNulty of Thompson & Knight LLP. And there could be unpleasant surprises for partners who receive adjusted partner statements as a result of the audits of lower-tier partnerships, she said. She added that while the removal of joint and several liability for the partners for partnership liabilities is taxpayer favorable, it might cause problems for the government, particularly with tiered entities. “The partnership being audited can issue adjusted partner statements to their partners, but if you cannot find a partner somewhere along the way, or they don’t pay, there are going to be enforcement issues,” she said.