Every year, changes to the upcoming season affect the way you commence business on a daily basis. The significant changes for 2018 are part of the Bipartisan Budget Act of 2015 (BBA). Passed by the Congress, the BBA greatly effects the rules for partnership audits.
The 2018 changes for partnerships may actually increase the number of audits each year. Being alert to changes will help you prepare for upcoming tax season. The approved changes will continue through the next two years. Finding inconsistencies and other issues is the ideal for the changes. Preparing your partnership, employees, and clients will help you stay compliant with the new rules.
Focus on Partnership Level Liability
In the past, changes to focus on partnership, not the individual partners’ returns, helped eliminate many inconsistencies. The new 2018 changes will continue to focus on the partnerships handling of adjustments and payments. Eliminating the IRS from focusing on the individual partners, the changes will affect the partnership as a whole.
For example, any underpayments resulting in increases to the tax will be the responsibility of the partnership. When interests or penalties are part of the audit results, the tax consequences will be against the partnership, not just the individual partner. The changes should help eliminate addendums to many individual partners’ returns.
Changes to the tax year are another significant change in the partnership level liability. When adjustments to returns are made, the amount will be part of the year of the partnership audit not the year in question. Depending on the penalty, the difference may greatly affect your partnership’s profit.
The Importance of Picking a Partnership Representative
Each partnership must elect a partnership representative. The new partnership elect replaces the working title of tax matter partner. The partnership representative acts as an authority figure for the entire partnership. Keep in mind, the partnership representative will have binding power in regards to any IRS communication, audits, actions and court proceedings.
If your partnership does not elect a partnership representative, the IRS will make the selection for your partnership. Consider making the selection early to guarantee the right individual to act as your partnership representative. The partnership representative may be a current partner or an authority figure outside of the partnership. The choice is yours to make.
Being Proactive for the 2018 BBA Changes
Consulting with your tax accountant or firm should be your first step in being proactive for the 2018 changes. Reviewing partnership agreements to meet any significant changes should be a priority. Meeting with your partners to review any possible problem areas should be your second. Educating your partners and clients about the effects of upcoming 2018 changes will help your partnership ease into the new guidelines.
Each tax season brings new challenges. The new BBA Rules are comprehensive. Learning the facts and initiating changes in your partnership will help you fully comply. Schedule an appointment with the accounting staff at Ernst Wintter & Associates today to ensure you are ready for the changes in 2018.