As part of the Bipartisan Budget Act of 2015, the federal government enacted sweeping changes to how the IRS audits partnerships and LLCs. Due to the changes, all partnership agreements and all operating agreements for an LLC taxed as a partnership should be reviewed and amended.
The new audit regime, which takes effect Jan. 1, 2018, is designed to raise tax revenue and make it easier for the IRS to audit partnerships and LLCs. To that effect, the new regulations centralize the assessment and collection of tax directly at the entity level for the partnership or LLC. (Traditionally the IRS had audited and assessed tax on the partners or members rather than the entity itself.)
Every partnership and LLC should amend their governing documents to:
- Designate a partnership representative who will have the sole authority to make binding decisions in audit proceedings. The IRS will designate a partnership representative if one is not appointed.
- Authorize selections regarding complex set of elections under the new audit rules.
To assist partnerships and LLCs in navigating the new IRS rules and to help minimize any potential negative impact, McDonald Hopkins has created two new programs:
- McDonald Hopkins Partnership and LLC Amendment Program - A program designed to prepare clients for the new rules by amending their governing documents.
- McDonald Hopkins Partnership Representative Specialists - A program that provides clients with a reliable option for their partnership representative.
McDonald Hopkins has developed a program to review the relevant provisions of your current governing document and advise you on your specific options relating to the audit rules. We have streamlined the process and are offering this service at a fixed fee. Based on our review and advice provided, you can then decide how to proceed in amending your partnership agreement or LLC operating agreement. As part of the fixed fee, we will make the desired changes in a single amendment to be adopted by the partners of the partnership or the members of the LLC . Our program strikes the balance between taking your specific needs into account while making the necessary amendments to your agreement in an efficient and economical manner.
The partnership and LLC amendment program consists of the following steps:
- Initial consultation: McDonald Hopkins will schedule an initial consultation with you and one of our tax attorneys who will briefly go over the new audit rules and inquire about the current status of your partnership or LLC.
- Operating agreement review: After the initial consultation, we will review your partnership agreement or operating agreement and will draft an amendment in response to the new audit rules.
- Follow-up call: Once your business has received our draft amendment, we will schedule a follow up call to go over the new changes with you, and explain the requisite steps regarding the adoption of the amendment.
If you are interested in participating in this program, please contact us at firstname.lastname@example.org or leave a message at (216) 430-2050.
Why use McDonald Hopkins as your partnership representative?
- We will track any correspondence received from the IRS and follow the notice provisions contained in your partnership agreement or operating agreement using a formalized, database-driven system. We will also take the appropriate steps to notify the partners or members (where required) and obtain appropriate consents regarding certain decisions.
- We have the experience and expertise in serving as the partnership representative. Furthermore, we have significant experience in handling partnership tax audits.The cost to delegate responsibilities to McDonald Hopkins involves an initial set-up fee and a modest annual fee.
- The regulations require that each partnership representative that is an entity (such as a corporation or LLC) designate a person to serve as the primary contact with the IRS. With McDonald Hopkins, this person (your “partnership representative designee”) will be one of our tax partners.
- Each partnership representative designee has vast experience drafting and interpreting the terms of partnership agreements and operating agreements as well as handling controversies with the IRS.
- You will receive a discount on legal fees in the event that you use McDonald Hopkins to handle aspects of an audit.
- Your engagement letter makes it clear that if you request a change to your partnership representative, we will cooperate in every way.