The Bipartisan Budget Act of 2015 has introduced new partnership audit rules, which require entities that file a partnership tax return in the United States (the "US") (Form 1065) to designate a Partnership Representative to serve as the direct contact with the IRS in the case of an audit. This change is effective for tax years beginning 1 January 2018 and applies to any domestic or foreign partnership, including any entities managed by non-US fund managers that meet the Qualifying Criteria below. The Partnership Representative and any Designated Individual must maintain a "substantial presence" in the US as defined by the updated centralised audit regime.
What are the Requirements?
Naming a Partnership Representative is required for 2018 tax returns and the named firm and/or individual must prove that it has "substantial presence" in the US as evidenced by:
- A US tax ID;
- US telephone number;
- US street address; and
- Ability to meet with the IRS at a reasonable time and place
The filing of a partnership return in the US would need to occur if the partnership has gross income effectively connected with the conduct of a trade or business within the US or derived from sources within the US. For corporations that "check-the-box" to be treated as a partnership for US tax purposes, the gross income test must also be passed to trigger the filing of a partnership return.
How can Walkers Assist?
At Walkers Professional Services we can assist non-US based fund managers by facilitating the provision of a dedicated professional to serve as the Partnership Representative. The representative will:
- Serve as a named individual on all US partnership tax returns;
- Act as a designated Partnership Representative to serve as the direct contact with the IRS in the case of an audit;
- Perform all required duties if and when an audit is required; and
- Consult with the General Partner of the partnership throughout all steps in the audit and work together with the partnership on any related request, documentation, filings or settlements that arise during the process.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.