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IRS guidance on BBA field exam procedures, partnership returns

IRS guidance on BBA field exam procedures

The IRS released an interim guidance memorandum—LB&I-04-1019-010—outlining field examination procedures for use by IRS examiners in the Large Business & International (LB&I) and Small Business/Self-Employed divisions when auditing partnership returns under the centralized partnership audit regime enacted by the Bipartisan Budget Act of 2015 (BBA). These interim guidance procedures apply until new Internal Revenue Manual provisions are published.


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Read LB&I-04-1019-010 [PDF 923 KB] (66 pages)


The BBA repealed the TEFRA partnership procedures and created a new centralized partnership audit regime that applies to entities that are required to file Form 1065, U.S. Return of Partnership Income. Certain partnerships may elect out of the BBA regime if they meet the eligibility requirements. The BBA regime applies to partnership tax years beginning on or after January 1, 2018. Partnerships may elect into the BBA regime for tax years beginning after November 2, 2015, and before January 1, 2018. 

Under the BBA regime, tax attributable to adjustments to partnership-related items is assessed and collected at the partnership level in the form of an “imputed underpayment,” unless the partnership makes an election under section 6226 to have its partners take into account their share of the partnership adjustments. Partnerships may request an adjustment to a partnership-related item by filing an administrative adjustment request under section 6227. Partners must treat partnership-related items on their own returns in a manner that is consistent with how such items are treated on the partnership return. 

Interim guidance for partnership return audits

Pursuant to the interim guidance memorandum, the BBA regime only applies to Subtitle A, Chapter 1 income taxes. However, the memorandum provides guidance for IRS examiners auditing a BBA partnership with adjustments that affect taxes imposed under Chapter 2 (Tax on Self-Employment Income – “SECA”), Chapter 2A (Unearned Income Medicare Contribution – “NIIT”), Chapter 3 (Withholding of Tax on Nonresident Aliens and Foreign Corporations), and Chapter 4 (Taxes to Enforce Reporting on Certain Foreign Accounts). 

The interim guidance memorandum sets forth exam procedures to address the following issues:

  • Determining if a partnership is subject to the BBA regime
  • Partnership representative and Form 8979, Partnership Representative Revocation, Designation, and Resignation
  • Administrative adjustment requests
  • Consistency principle
  • Informal claims by LB&I taxpayers
  • Statute of limitations on making adjustments
  • Computing an imputed underpayment
  • Planning, executing, and resolving the examination

The interim guidance memorandum also outlines procedures for report writing, case dispositions, and Form 2848, Power of Attorney and Declaration of Representative. Pursuant to the memorandum, Form 2848 is used to authorize an individual to represent a partnership representative who is acting on behalf of the partnership under the BBA centralized partnership audit regime. According to the memorandum, for matters unrelated to the centralized partnership audit regime, a separate Form 2848 must be signed by a partner that has authority to do so under state law.

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