State and Local Tax (SALT) attorney Bruce Ely was quoted in Law360 on anticipated IRS regulations that could grant broad powers to those representing partnerships during audits, but that could also expose representatives to new risks, liabilities and potential misconduct claims from partners. Despite the risks for partnership representatives, Ely predicts a new cottage industry of firms offering themselves up as partnership representatives. Disputes between partnerships and representatives are going to depend heavily on the language in the partnership agreement, he said.
One of the most troubling aspects of the regulations is the restriction placed on revoking a designated partnership representative, Ely explained. These limitations could lead to partnerships filing contrived adjustment requests for the sole purpose of changing partnership representatives when needed.
The rules don’t even specify how a representative can be replaced if the person has died between the time they were designated and an audit has commenced, he said.
“There can be some real footfalls there if the current language is retained,” Ely said. “If you have a disgruntled partnership representative, what can that person do in terms of damage to the partnership or its relation with the IRS before they are finally replaced?”
The complete article, “New Audit Powers Mean New Liabilities For Partnership Reps,” appeared in Law360 on May 16, 2017. (login required)