Centralized Partnership Audit Regime: To elect or not to elect?

On Behalf of | Dec 18, 2019 | Tax Audits

The Centralized Partnership Audit Regime (CPAR) is, essentially, a new take on how the Internal Revenue Service (IRS) would conduct an audit on a partnership. Lawmakers designed the process to make it easier for the agency to conduct audits on partnerships. This piece will delve into how the new regime works and whether or not partnerships should elect into the new system.

How do partnership audits work?

If a partnership undergoes a federal tax audit and the IRS determines a tax is due from a previous tax year, the IRS generally expects the partnership in the current tax year to cover the bill. Partnerships that elect into the CPAR designate a partnership representative. This individual can review the audit’s findings and elect to “push out” the adjustment to the partners that were in charge of the business during the tax year in question. This can mean the partners responsible for the tax error are held accountable for any resulting penalties.

Should partnerships elect into the CPAR?

According to a recent publication in Forbes, most partnerships appear to opt out of the CPAR. The main reason behind supporting the choice to opt out is a concern for future litigation if a disagreement arises between the partners and their partnership representative. A second concern is a bit more jaded and involves the notion that anything that makes life easier for the IRS may not be in the taxpayers’ best interest.

What is best for my partnership?

Is opting out of the CPAR the right choice for your partnership? The answer to this question requires a careful review of the implications of opting in versus not. The attorneys at Goldburd McCone are familiar with tax laws and can discuss the pros and cons of each option to help you make the best choice for your business interests.