Planning for Revised Partnership Audit Procedures

partnership-auditEffective for partnership tax years beginning after 2017, the current partnership audit procedures will be replaced with a single centralized audit system.

While some partnerships may elect out of the new regime, most partnerships will be subject to the new rules. Under the new system, the IRS will examine a partnership’s items of income, gain, loss, deduction, credit and partners’ distributive shares for a particular year of the partnership (i.e., the reviewed year).

Any adjustments are taken into account by the partnership, and not the individual partners, in the year that the audit or any judicial review is completed (i.e., the adjustment year). Thus, it’s possible for current year partners to be liable for mistakes or errors committed in prior years when they were not partners.

The new rules provide certain exceptions that can allow current year partners to escape such liability, including an election that must be made no later than 45 days after the date of a notice of final partnership adjustment. The bottom line is that partnership agreements should be reviewed and revised to take into account the new audit rules, and that is best done sooner rather than later.

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About cozbycpa

Heather L. Cozby is a CPA on the South Shore and Cape Cod. The managing partner of Cozby & Company, LLC, Heather has the resources and experience necessary to provide quality professional services on a timely basis and at a reasonable cost. She specializes in tax planning & preparation; audit, review & compilation services; management advisory services; bookkeeping; and accounting. Her unique niche is in working with homeowners’ associations and condominium trusts, advising with rental real estate, and providing outsourced financial consulting for mid-sized companies. She is more entrepreneurial than most accountants, and offers the best of both worlds - providing the services of a larger firm while retaining the ability to connect with her clients on a personal level.
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