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Author: Scarinci Hollenbeck, LLC
Date: February 13, 2018
The Firm
201-896-4100 info@sh-law.comThe Internal Revenue Service’s (IRS) new Partnership Tax Audit Rules take effect on January 1, 2018. As we continue through the New Year, New Jersey partnerships (including entities such as LLCs that have elected to be taxed as partnerships) should be considering required and optional amendments to their existing partnership agreement (or operating agreement) to reflect the new tax regime.
Under the new Centralized Partnership Audit Regime (CPAR), the current rules governing partnership audits, that were originally enacted by the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), are repealed. In its place, the CPAR assesses and collects tax at the partnership level instead of at the level of individual partners. The applicability of any penalty or additional tax must also be determined at the partnership level.
The new tax audit rules apply to all partnerships, limited liability companies (LLCs) taxed as partnerships, and joint ventures. As more fully discussed in a prior article on the new tax audit partnership rules, the IRS regulations also establish procedures for electing out of the centralized partnership audit regime, filing administrative adjustment requests, and determining amounts owed by the partnership or its partners attributable to adjustments that arise out of an IRS exam.
The new IRS rules do not require businesses to amend their partnership and/or operating agreements. Nonetheless, it is more than just good business sense to do so. Below are several issues to consider:
The CPAR dramatically alters the federal tax treatment of all forms of New Jersey partnerships. We encourage businesses that are taxed as partnerships to begin the analysis of their newly formulated compliance burdens and contact experienced counsel with any questions.
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