Partnerships And LLCs Welcome New Rules Regarding Tax Audit
Business owners are now encouraged by tax attorneys and corporate to get to know the new rules regarding federal income tax audit. This is not only pertaining to business owners but those who have particular interests with entity that is considered as partnership when it comes to tax filing. This includes limited liability companies that have two or more members. With the absence of audit insurance, they could suffer great loss because of tax audits.
The new rules will take be implemented on tax years starting December 31, 2017. It will concern anyone who owns or operates a business that is considered as a limited liability, partnership or limited partnership.
Thomas Ubbing, a partner at Brouse McDowell, said that before the changes the tax audit was only done to individuals at the partner level of the said audit year. With the new rules, the IRS is given the power to audit the partnership as a whole instead of just looking at each partner. The partners during the adjustment year will be the same year that the assessment will be conducted.
It entails that current partners will be assessed despite the fact that they were not members during the audit year and there was no economic benefit on their end.
Ubbing said that majority of the partnerships will have methods to avoid these new rules and assign the economic burden to those who are actual partners during that time. For this to be possible, the agreement or governing document of the company should be changed.
Despite the acceptance of the partnership and the partners of the new rules, it is important to have a provision that states partnership representative’s roles as well as responsibilities.
The new rules dictate that the partnership representative should be replaced with tax matters partner. This is why Ubbing cautions those who are planning to start an LLC or a partnership to get audit insurance and to get to know the new rules before they make their operating agreement. This is a crucial part of LLC because it identifies the members and relationships among them.