Significant Changes to Partnership Tax Audits Coming in 2018

David J. Moise and Jill E. Misener

In less than six months, on January 1, 2018, the new centralized partnership audit rules enacted by Congress as part of the Bipartisan Budget Act of 2015 (“BBA”) will go into effect. The new rules were drafted in response to the proliferation of business entities that are taxed as partnerships (such as LLCs), and the perceived difficulty in being able to both effectively audit these entities and to assess and collect tax from the individual parties as appropriate.

The BBA creates a new partnership audit regime that significantly changes the procedures for partnership audits under the Tax Equity and Fiscal Responsibility Act (“TEFRA”) and the special rules for Electing Large Partnerships (“ELP”). Under the new rules, tax adjustments resulting from partnership examinations will generally be assessed at the partnership level rather than the individual partner level. This enables the IRS to collect tax due on partnership adjustments at the entity level, effectively imposing an entity level tax on partnerships. Previously, under TEFRA, adjustments to partnership items were determined in a single proceeding at the partnership level, but then flowed through to partners pursuant to a complex set of rules requiring significant IRS time and effort. The new rules are intended to simplify the complexity of the current partnership audit rules, and increase the ability of the IRS to examine partnerships, particularly large and tiered partnerships. Continue reading

IRS Criminal Investigation Division Announces New Priorities

Carlos F. Ortiz, Bridget M. Briggs, and Jeffrey M. Rosenfeld

At the ABA Section of Taxation’s 2017 May Meeting, Erick Martinez, the IRS Criminal Investigation Division’s Director of Field Operations – Northern Area, provided insight into the Division’s current priorities and strategies. Mr. Martinez indicated that the Division is concentrating on nationally coordinated investigations in conjunction with the Justice Department Tax Division and the IRS Large Business and International Division, such as cases involving renewable fuel credits.

The Criminal Investigation Division is also increasing its focus on data-driven cases such as beneficial owner cases, given the plethora of information resulting from the Swiss bank program and offshore voluntary disclosure programs. Mr. Martinez further noted an increased emphasis on cybercrime with two new cybercrime units in Los Angeles and Washington investigating failure to report income earned through the use of technology.

IRS Announces Plans to Move Forward with Passport Revocation Program

Jed M. Silversmith and Jeffrey M. Rosenfeld

U.S. citizens who owe more than $50,000 in unpaid federal taxes are at substantial risk of having their U.S. passports revoked within the next few months. In December 2015, Congress enacted legislation requiring the IRS to provide a list of names to the State Department of individuals with “seriously delinquent tax debt.”¹ That term was defined in the statute to mean tax debt of over $50,000, including interest and penalties.  26 U.S.C. § 7345(b). The legislation also requires that the State Department refuse to issue new passports and gives the State Department discretion to revoke currently issued passports. See 22 U.S.C. § 2714A. Continue reading