Partnerships will need to make a significant choice for the first time on their 2018 Forms 1065, “U.S. Return of Partnership Income,” to designate a partnership representative. Because the rules are new and complex, partnerships should focus on the choices they will be required to make when they file their returns.
The new centralized partnership audit regime
The new centralized partnership audit regime was enacted as part of the Bipartisan Budget Act of 2015 (BBA), effective for taxable years beginning on or after Jan. 1, 2018. Following are some important aspects of the BBA:
- All partnerships are covered by the BBA unless a partnership is eligible to, and does, elect out of the regime.
- Partnerships face an entity-level liability for tax due as a result of an audit, though they can make an election to require audit-year partners to pay the tax.
- Partnerships that do not elect out of the BBA must designate a partnership representative (PR) who has sole authority to act on behalf of the partnership for purposes of the BBA.