All partnerships in most LLC's need to amend their partnership and operating agreements. The new partnership audit rules coming into effect on January 1st, 2018 have fundamentally changed the landscape of IRS proceedings for audits and enable them to conduct more audits. The good news is that for many small partnerships, they can amend their partnership agreement or LLC's can amend their operating agreement to affirmatively opt out of the provisions ahead of time. This opt-out is an annual election made with the tax return, but it is only available to partnerships meeting certain criteria. In order for a partnership or LLC to opt out of the new partnership audit rules, their membership must consist of only certain types of members, including individuals, C corps, or S corps. However, if they have a trust or a tiered partnership structure where partnerships or LLC's are investing in other partnerships or LLC's, they are not eligible to opt out of the new rules. With that in mind, there is an option for firms to make the election with their annual tax return to opt out of this new audit regime. This option can prevent burdens for partnerships in the audit process or potentially conflicts of interests among various parties within the partnership or LLC. Thank you for watching.
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