Today the IRS released temporary regulations pursuant to section 1101(g)(4) of the Bipartisan Budget Act of 2015 (BBA), providing the time, form, and manner for a partnership to “opt in” to the new partnership audit regime before such regime takes effect on January 1, 2018. The opt-in rules were also issued as proposed regulations. Under the rules, a partnership that elects to apply the new partnership audit regime to a partnership return filed for an eligible taxable year may not elect out of the new rules under the small partnership exception under section 6221(b) as added by BBA, with respect to that return. Once made, an election may only be revoked with the consent of the IRS.
Aaron Nocjar, partner in Steptoe’s Washington office, commented, “These early opt-in regulations are the first of what likely will become a large number of government guidance items over the coming years on the new partnership audit rules. The regulations do not permit early opt-in elections unless and until either an actual examination of a relevant partnership tax year (generally 2016 or 2017) starts or a refund request is filed for such a year in 2018 or thereafter. The regulations also indicate that the government is concerned about partnerships opting in early to the new entity-level audit, assessment, and collection regime in circumstances where partnerships may not have sufficient assets ultimately to pay for any entity-level assessment (or bankruptcy rules would otherwise prevent such payment). The required representations related to this concern, which generally a TMP is to make under penalties of perjury in order to make such an opt-in election, seem be significant obstacles for any partnership considering such an opt-in election. That said, there do not appear to be any specific penalties mentioned for the breach of any such representations, although presumably the generally applicable penalties to penalty-of-perjury statements would apply.”