Partnership representative frequently asked questions (FAQs)
For the 2018 tax year, Internal Revenue Code section 6223 (IRC 6223) will require entities to appoint a partnership representative as a sole authority to communicate on the firm’s behalf in the event of an audit. The Internal Revenue Service (IRS) has also stated that, if entities do not select their own partnership representative, one will be assigned to them.
Read our FAQs for more details.
1: What are the new partnership audit rules for 2018?
The new partnership audit rules for the 2018 tax year offer a set of streamlined rules: The position of “tax matters partner” (TMP) under the Tax Equity and Fiscal Responsibility Act of 1982 will be replaced by the position of “partnership representative” (PR), with duties, responsibilities, and authority vastly more significant than those of a TMP.
Each firm will be required to designate a PR with the sole authority to communicate on behalf of the partnership for the audit. The CPA Journal offers a detailed look at the rules in “The IRS’s New Streamlined Audit Rules for Partnerships.”
2: When do the new partnership audit rules take effect?
The new law applies to tax years beginning after Dec. 31, 2017. Accountants and attorneys alike are in the early stages of understanding the mandate and the effects on 2018 tax returns. The IRS recommends that partnerships should begin planning their 2018 PR strategies as early as January of 2019.
3: Who is impacted under the new partnership audit rules?
All partnerships (general, limited, and limited liability) are subject to the new PR audit rules, unless they are permitted to elect out.
4: How can you elect out of partnership audit rules?
A partnership can elect to opt-out of the new rules under IRC 6223 if it has 100 or fewer partners consisting exclusively of individuals, corporations, estates of deceased partners, and foreign entities that would be treated as C corporations if such entities were domestic.
5: What qualifications are needed to become a partnership representative?
The PR must have a substantial presence in the United States and be available to meet in person with the IRS at a reasonable time and place. They must also maintain a street address and telephone number in the U.S. where they can be reached during normal business hours, and are required to possess a U.S. taxpayer identification number.
6: What are the responsibilities of a partnership representative?
- Provide a representative in the form of an experienced, tenured professional, in most cases an accountant or attorney
- Track correspondence and notices from the IRS
- Notify partners and members immediately of any and all engagement with the IRS
- Obtain consent from firm members on all responses relayed to the IRS
7: Why has the law changed?
The new rules under IRC 6223 are designed to reduce the time required by the IRS to contact the partnership and begin the audit process. In addition, the administrative burden of assessing and collecting taxes at the partner level will shift from the IRS to the partnership.
How can CSC help?
CSC can help get your clients in compliance by providing Partnership Representative services to larger U.S. entities and foreign partners who do not have a U.S.-based partner to fulfill this role.
We offer independent, conflict-free Partnership Representative services, and are a leading provider of business, legal, tax, and digital brand services to companies around the globe.
Our experience expertise includes:
- Being on the forefront of tax, accounting, and legal requirements and mandates.
- Drawing from a deep bench of experts at CSC to assist clients throughout the duration of the partnership and the audit process, when applicable.
How has CSC become a leading provider of partnership representative services?
As the only corporate services organization to be consulted on the regulation, CSC experts were invited by the IRS to bring to light the concerns and challenges, as well as opportunities, the industry would encounter during the IRC 6223 rollout. CSC's involvement includes the following:
- A May 2018 presentation at the ABA Tax Section Annual Meeting in Washington, D.C. with IRS staff and the law firm of Morgan, Lewis & Bockius.
- An upcoming meeting on Capitol Hill to discuss the new regulation with lawmakers.