George Hani Comments on Budget Deal Provision Increasing Ease of IRS Partnership Audits in Accounting Today

"Budget Deal Makes It Easier for IRS to Audit Large Partnerships"
Accounting Today

George Hani commented on the provision included in the recently signed two-year budget deal that will make it easier for the Internal Revenue Service (IRS) to audit large partnerships. "It's a total sea change. It's revamping and scrapping an old system and coming up with a new system, which is going to make it easier to audit partnerships," Hani said. "It could be good or bad, depending upon your circumstances. If you're one of those partners under audit, perhaps this is easier, perhaps it's not. But if you were not under audit, now you have a greater chance of being under audit."

In comparison to the prior system called TEFRA, named after the Tax Equity and Fiscal Responsibility Act of 1982, the new rules could come as a shock to partners who suddenly find themselves under audit for a prior year in which they weren't even partners in a firm. "Let's say you have the 2020 tax year that's being audited in 2025. So in 2025 the IRS decides that some additional amount of tax is due. The partners who are partners in 2025 bear the burden of that tax, not the partners who were partners in 2020," Hani said.

Many partnerships have tax-exempt entities, so the tax impact at the partner level can vary quite a bit. "The basic thrust is that they've resolved things that were troublesome for the IRS to make things easier for the IRS, but harder for the taxpayers, to achieve precision," Hani said. "People need to be aware of what their rights are, what the rules are, and what they can expect." Hani predicts there will be more to come, whether from the IRS or from Congress. "These rules are going to need to be modified and tweaked to address certain things. Let's just hope they don't get modified and tweaked so much that they become just as complex as TEFRA," he said.

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