Rule Changes for Partnerships

Posted In: Business

 

As you’re likely aware, the Bipartisan Budget Act that took effect at the beginning of this calendar year introduced several changes regarding business taxation. Among these changes, the IRS is no longer required to collect back tax due from the individual partners who owe, if an audit reveals that an adjustment is needed. This means that current partners may be responsible for past due taxes from former partners.

 

The new law does make an important provision that allows certain partnerships to “elect out” of the new rules if conditions are met. Business owners must take affirmative steps to avoid falling into the negative effects of the new rules.

 

If a business qualifies, the provision requires an annual election on a timely-filed return for the tax year to which it relates.

 

If your partnership (or business taxed as a partnership) has 100 or fewer partners and all partners are either individuals, corporations, or the estates of deceased partners, consider the following:

  • Elect out of the new rules.
  • Appoint a Partnership Representative.
  • Update your entity agreement to include Partnership Representative provisions to ensure your ability to effectively navigate this change.

If your business has more than 100 partners – or any of the partners are either another partnership, a limited liability company (LLC) or a trust – you will not be eligible to elect out of the new rules. That said, the partners may make a “push-out election” to past partners, instead of accepting the tax consequences of the current partners paying the tax of prior-year partners. In order to provide for this flexibility:

  • Appoint a Partnership Representative.
  • Consider the indemnification of the representative in case past or present partners don’t like the decisions made.
  • Update your agreement to include the above provisions.

Contact Ambassador Advisors for more information, and visit an experienced attorney (like those on our team) to update your agreements.

 

Source: CPA Journal

 

Any opinions expressed in this forum are not the opinion or view of American Portfolios Financial Services, Inc. (APFS) or American Portfolios Advisors, Inc.(APA) and have not been reviewed by the firm for completeness or accuracy. These opinions are subject to change at any time without notice. Any comments or postings are provided for informational purposes only and do not constitute an offer or a recommendation to buy or sell securities or other financial instruments. Readers should conduct their own review and exercise judgment prior to investing. Investments are not guaranteed, involve risk and may result in a loss of principal. Past performance does not guarantee future results. Investments are not suitable for all types of investors. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purposes of avoiding penalties that may be imposed by law. Each tax payer should seek tax, legal or accounting advice from a tax professional based on his/her individual circumstances.

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