On Dec. 21, 2018, the IRS released final regulations1 on the centralized partnership audit regime enacted by the Bipartisan Budget Act of 2015 (BBA). The final regulations generally adopt the proposed regulations that were published on Aug. 17, 2018, without any major changes. The final regulations are effective for partnership taxable years beginning after Dec. 31, 2017, and ending after Aug. 12, 2018, as well as for partnerships that make the election to apply the centralized partnership audit regime to partnership taxable years beginning on or after Nov. 2, 2015, and before Jan. 1, 2018.
BBA rules continue to develop
The final regulations released in 2018 provide the framework for how the BBA will work. However, further guidance is expected. For instance, the rules for adjusting capital accounts and basis under the BBA were not included in the most recent final regulations but will be addressed in future guidance. In addition, Notice 2019-06, released on Dec. 20, 2018, states that the IRS will issue future guidance addressing special enforcement procedures under IRC Section 6241(11) allowing the IRS to audit partnership-related items for certain partners without having to follow the BBA procedures and limiting when a qualified S-corporation subsidiary under Section 1363(b)(3) is an eligible partner for purposes of electing out of the BBA. The IRS also is expected to issue procedural guidance regarding a number of issues, including modification and appeals.
Also, on Dec. 19, 2018, the Tax Court announced interim and proposed amendments to its rules of practice for the BBA and provided additional time for comments before these rules are finalized.
BBA rules continue to develop
The final regulations released in 2018 provide the framework for how the BBA will work. However, further guidance is expected. For instance, the rules for adjusting capital accounts and basis under the BBA were not included in the most recent final regulations but will be addressed in future guidance. In addition, Notice 2019-06, released on Dec. 20, 2018, states that the IRS will issue future guidance addressing special enforcement procedures under IRC Section 6241(11) allowing the IRS to audit partnership-related items for certain partners without having to follow the BBA procedures and limiting when a qualified S-corporation subsidiary under Section 1363(b)(3) is an eligible partner for purposes of electing out of the BBA. The IRS also is expected to issue procedural guidance regarding a number of issues, including modification and appeals.
Also, on Dec. 19, 2018, the Tax Court announced interim and proposed amendments to its rules of practice for the BBA and provided additional time for comments before these rules are finalized.
1 The IRS released the version of the final regulations that it sent to the Federal Register for publication prior to the partial government shutdown. The final regulations have not yet been published in the Federal Register. Update: The final regulations were added to the Federal Register on Feb. 27, 2019.
