What This Letter Means

Letter 3458, Notice of Potential Adjustment Affecting Taxes under Chapters 2 and 2A, tells you that a partnership you are a partner in is under IRS examination, and that the results may change certain taxes on your own return.

Chapter 2 is the tax on self-employment income. Chapter 2A is the net investment income tax. Under the centralized partnership audit rules, most partnership adjustments are handled at the partnership level. These two taxes are different. Any change to them is assessed against the individual partner, not the partnership.

The letter is a courtesy notice. The law does not require it. The IRS sends it so partners are not caught off guard. Without it, the first thing you might see is a request to extend the time for assessment, an audit report, or a notice of deficiency.

What to Do

  • Contact the partnership. The partnership representative handles the audit. Ask what is being examined and how it might affect your Schedule K-1.
  • Pull your return for that year. Look at how you reported your share of partnership income for self-employment tax and net investment income tax.
  • Keep your records together for that year until the matter is closed.

What Happens Next

If the partnership audit produces no change that affects you, the IRS sends a letter saying no adjustment will be made to your return. If it does affect you, you will get a proposed adjustment. Because these taxes are assessed at the partner level, the normal deficiency procedures apply to you. That includes a notice of deficiency before the IRS can assess, and the right to petition the Tax Court in response to that notice.

Deadlines

This letter does not set a response deadline. Later letters will. Watch for any request to extend the statute of limitations, a 30-day letter, or a notice of deficiency, and treat those dates seriously.

If you received Letter 3458 and want to understand your exposure from a partnership audit, call us at (813) 229-7100.