The Bipartisan Budget Act of 2015 changed the way the Internal Revenue Service ("IRS") deals with audits of partnerships and replaces the previous requirement to designate a "Tax Matters Partner." Under this regime, entities filing as a US partnership for tax purposes are required to name a US based "Partnership Representative" of the partnership to act as a liaison and handle matters before the IRS.
What is Changing?
There are many changes to the role of the Partnership Representative from the former regime. The Partnership Representative’s role will be similar to that of the previous Tax Matters Partner in that they will continue to serve as the designated liaison before the IRS. However, the new law affords the Partnership Representative a higher level of authority, including the power to bind the partnership, its partners and any indirect partners who have invested in the partnership with respect to the audit process. The Partnership Representative must also have a substantial presence in the US. Unlike the prior law, the Partnership Representative need not have any other relationship with the partnership.
Who is Affected?
The requirement for a Partnership Representative generally applies to entities taxed as partnerships and is effective for audits of partnership tax years beginning on or after 1 January 2018. The party acting must be disclosed in tax returns for tax years beginning on or after 1 January 2018 so now is the time to consider who is best placed to take on the role.
Looking Ahead: The Maples Advantage
This regulatory change has created challenges for clients that do not have a US based qualified individual to serve in this capacity or do not wish to take on the additional obligations of the new regime. Through our Delaware office, assuming certain criteria are met, we are able to provide a Partnership Representative solution with experienced professionals acting as designated persons. During the course of our role we will work closely with the general partner or managing member, administrators and, most importantly, relevant US tax advisors to the structure to ensure all obligations are discharged.
Our US team brings an unmatched level of expertise that draws upon jurisdictional knowledge and practice. Acting as an extension of our clients’ in-house teams, we strive to alleviate administrative and operational pressures to facilitate growth. Our unique perspective and insight enables us to effectively guide our clients in navigating the complexities of today’s evolving business landscape.