The LTR 1615 notifies a partnership that it's being examined under the Bipartisan Budget Act (BBA) centralized partnership audit regime. Under BBA, the IRS audits partnerships at the entity level rather than auditing each individual partner. Any tax adjustments are assessed against the partnership itself unless the partnership elects to push out the adjustments to individual partners.
The Partnership Representative
Every partnership subject to BBA rules must have a designated partnership representative (PR). The PR has sole authority to act on behalf of the partnership in the audit. If your partnership doesn't have a designated PR, the IRS can appoint one. Engage your partnership representative immediately upon receiving the LTR 1615.
Key Decisions
The partnership (through its PR) must decide whether to accept the IRS's adjustments, file a petition with Tax Court to contest them, or elect to push the adjustments out to individual partners under IRC Section 6226. The push-out election distributes the adjustment to each partner, who then reports the adjusted amounts on their individual returns.
Why This Matters
Under BBA, the partnership pays the "imputed underpayment" at the highest individual tax rate. This is often more expensive than if the adjustments were pushed out to individual partners who may be in lower brackets. The push-out election is usually more favorable but must be made within specific deadlines.
If your partnership received an LTR 1615, call us at (813) 229-7100. Partnership audits under BBA are complex and the decisions made early in the process have lasting consequences.