The Consolidated Appropriations Act, 2018 (“Act”), was signed into law on March 23rd. The Act contains a number of changes to the partnership audit rules that went into effect for partnerships (including LLCs taxed as partnerships) on January 1st of this year. Most notably, the Act expands the scope of the new partnership audit rules by making them applicable to “partnership related items” rather than “partnership income, gain, loss, deduction or credit.” The change allows the IRS to make adjustments to items that do not necessarily appear on a return, i.e. items such as a partner’s basis in their partnership interest, the partnership’s basis in its assets and a partner’s share of partnership liabilities. In addition, the Act clarifies procedures for filing amended returns, includes an alternative procedure for filing amended returns and procedures for netting items to determine imputed underpayments of tax.
The partnership audit rules as amended by the Act implement audit procedures that are significantly different than the rules in effect prior to 2018. If your partnership or LLC taxed as a partnership has not amended its Partnership or Operating Agreement to reflect these changes, now is the time to do so.