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Alternative Market Briefing

Other Voices: New partnership audit rules spell changes for private funds

Monday, April 30, 2018

By: Marc Finer, Murtha Cullina, LLP

New partnership audit rules became effective for tax years beginning on or after January 1, 2018. These rules, which are designed to make it easier for the IRS to audit partnerships and collect additional tax liabilities relating to partnership operations, apply to all partnerships and limited liability companies taxed as partnerships (hereinafter, "partnerships"). The New Rules do not require an amendment to the partnership agreement to be applicable. However, these rules will significantly impact partners/members (hereinafter, "partners"), and not updating the partnership agreement could eliminate the partners' ability to make certain elections and dictate the manner in which important decisions under the New Rules should be addressed. Moreover, unless certain options under the New Rules are addressed in the partnership agreement, potential investors may be reluctant to become partners.

This client alert provides a high-level summary of the new partnership audit rules and the amendments to partnership agreements that should be considered to address these rules:

Partnership Representative.Under the New Rules, the "partnership representative" is given the sole authority to act on behalf of, and bind, the partnership with respect to a partnership audit and other proceedings. The partnership representative is not legally required to notify the partners of an audit or keep them updated on the status of the audit. Importantly......................

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