Florida Estate Planning and Probate Law Blog focused on recent case law and planning ideas.


The Bipartisan Budget Act of 2015 has strengthened the IRS’s ability to audit partnerships (including multi-member LLCs). The new rules apply to tax years beginning after 2017, and will apply to partnerships of 100 or more partners. To prepare for these changes, Partnerships should amend their Partnership Agreements and select a “Partnership Representative” (sole contact individual with the IRS auditor and someone authorized to make all decisions regarding how to handle the audit).

The new rules require the IRS to assess the partnership if filing errors are detected during an audit. The Partnership Representative will then be responsible to determine whether the partnership itself (the current partners, indirectly), or those who were partners during the audit period, should pay the assessment. The Partnership Representative will also be able to determine whether the entity could opt-out of the new rules (if it has 100 or fewer partners, individuals, S corporations, C corporations, or estates of deceased partners). If you have an S corporation partner, then you must count each of its shareholders for this purpose. If a Partnership Representative is not designated by the entity, the IRS reserves the right to appoint one for the entity.

Partnerships should begin planning for 2017 today by determining: (i) who will serve as the Partnership Representative; (ii) the level of indemnification they will receive against any costs or liabilities that may be incurred in that role, and (3) the level of accountability they will have to the company and its partners. It is important to note that Partnership Representative does not need to be a partner of the entity.