New partnership hot rule brought to you by the tax law intended to streamline how partnerships in LLC audits are handled. Congress enacted new procedures. Under the old rule, the IRS audited the individual partners and collected underpayments directly from them. Meanwhile, under the new audit rules, the IRS audits the partnership and the partnership itself must pay any underpayments in the adjustment year. This rule leads to a higher tax rate than the older rules because the change actions taken by the partnership bind both the partnership and all partners. Partners should consider designating a knowledgeable partnership representative. Let's go through an example: For partners who own a fashion boutique, in 2019, Joe sold his interest. Exactly, the IRS informs the partnership that it will conduct an audit on the partnership's 2016 return. This shifting of liabilities is pretty worrisome, especially where the partnership composition has changed. In our example, Zack is responsible for the underpayment, not Joe. There are multiple actions the partnership needs to take, which are detailed out on our blog. It is best that these items are addressed as soon as possible. For incoming partners, thorough due diligence is a must. Request indemnification. More information is provided on our site. At the tax law, we will be with you every step of the way. Music.
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Video instructions and help with filling out and completing What Form 8865 Audit
