The IRS has issued final regulations regarding the designation and authority of the partnership representative under the centralized partnership audit regime. The final regulations make a number of changes to prior proposed regulations.
Eligibility to Serve as Representative
The final regulations clarify that:
- a disregarded entity can serve as a partnership representative; and
- a partnership may designate itself as its own partnership representative.
In either case, the entity must have substantial presence in the United States, and must appoint a designated individual that has a substantial presence in the United States to act on the entity’s behalf as partnership representative.
In addition, the final regulations remove the capacity-to-act requirement contained in the proposed regulations. This is because the partnership should have as much flexibility as possible in determining a partnership representative so long as the person meets the substantial presence in the United States requirements.
Time for Changing the Representative
The final regulations allow the partnership to change the partnership representative through revocation when the partnership is notified that the partnership return is selected for examination as part of an administrative proceeding, in addition to when the notice of administrative proceeding (NAP) is mailed. Under the proposed regulations, the partnership was not able to change the partnership representative until it received the NAP.
The final regulations remove the ability of a resigning partnership representative or designated individual to designate a successor. Because it is unfair to the partnership to allow a resigning partnership representative to request adjustments to items of a partnership, the final regulations also have been revised to prohibit a resignation at the time of the filing of an administrative adjustment request.
Among the additional changes contained in the final regulations are changes to:
- the ability to revoke partnership representative status;
- the effective date of a revocation or resignation of a partnership representative;
- notification requirements for resigning partnership representation or revocation of partnership representation designation; and
- IRS designation of a partnership representative.
Temporary Regulations Removed
The final regulations remove temporary regulations regarding the election to apply the centralized partnership audit regime to partnership tax years beginning after November 2, 2015, and before January 1, 2018.
The final regulations are effective on August 9, 2018, the date when published in the Federal Register.