Mary McNulty Quoted in Tax Notes Today on Partnership Audit Regs

“Much-Anticipated Proposed Partnership Audit Regs Rereleased”

The proposed partnership audit regulations released and withdrawn in January were released again June 13 to a practitioner community expressing gratitude for the IRS’s efforts to address prior issues, if still hopeful for more changes, including a delayed effective date.

The new version of the proposed regs (REG-136118-15) contains only a handful of changes from the version released in January. Those changes include a parenthetical early in the preamble clarifying that the new partnership audit regime will apply to both foreign and domestic partnerships, further clarification of the reservation and request for comments on multi-tier pushouts under section 6226, a reference to Executive Order 13789, and the removal of the former Example 3 in reg. section 301.6225-1(f).

Mary A. McNulty of Thompson & Knight LLP said practitioners had noticed a math error in the example that was removed from the reproposed regs, but she added that the example “was helpful in illustrating the calculation of the imputed underpayment in a situation in which an adjustment reallocates an item from one partner to another.” She added that it is encouraging that the clarified request for comment on multi-tier push-outs is a sign that the IRS and Treasury are considering implementing the push-out election in that situation.

The partnership audit regulations “fall into the category of being helpful to taxpayers, rather than burdensome regulations that the Trump administration wants to avoid,” McNulty said. These are the sort of regulations that taxpayers need to fill in gaps in the statutes passed by Congress, she said.

McNulty also expects “comments suggesting how the partnership representative provisions can be strengthened to avoid issues in the future.”