Rules Finalized for Partnerships Opting Out of Centralized Audit Regime

Rules Finalized for Partnerships Opting Out of Centralized Audit Regime

The IRS has issued final regulations for partnerships who wish to opt out of the centralized partnership audit regime established under the Bipartisan Budget Act of 2015.

Under the legislation, Congress granted the IRS the ability to audit large partnerships, including hedge funds and private equity firms, by way of auditing the firm as a whole versus at the partner level.

Under the newly finalized regulations, partnerships that meet certain eligibility criteria can opt out of the audit regime. To be eligible, partnerships must:

  1. have 100 or fewer partners as determined by the partnership’s Schedule K-1; and
  2. all partners must be eligible partners at all times during the taxable year (eligible partners are defined as individuals, C corporations, eligible foreign entities, S corporations, or estates of deceased partners).

The final centralized audit regime rules affect partnerships for taxable years beginning after December 31, 2017.

For more information on the above regulation, please contact the team at MFA.

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