K-1 and Form 8082 Consultation
The Schedule K-1 (Form 1065) is a scanable form, inclusive of codes, that further provides the IRS with the means by which to determine how an entity taxed as a partnership for Federal tax law purposes. Practitioners must fully consider that much of what goes into this one-page form and the codes thereon assist the IRS in "matching" up these "partnership items" located within the 4 corners of the partnership tax return K-1 with whatever is thereafter reported (or not reported) on the partner returns. The difficulty that then arises is when there are layers of entities located within the structure, such that multiple layers of K-1s exist. These entities are then subject to TEFRA's special audit procedures, which places the onus on practitioners to assist in making sure that "indirect partners" who are "unidentified" under IRC Section 6229(e) come forward and file the requisite "identification statement" and any IRS Form 8082 (when required) to take issue with erroneous "partnership items" (not limited to what appears within the four corners of the K-1).
The IRS Form 8082 is used by a partner to notify the IRS that he/she/it is reporting "inconsistent treatment" of a "partnership item" otherwise passing through from a source partnership. The Form 8082 may also be used as the means by which a partnership can make an administrative adjustment request when the partnership is filing their partnership tax returns electronically. However, for those partnerships not filing electronically, these TEFRA partnerships wishing to "amend" their returns need to use IRS Form 1065-X.
In November 2015, President Obama signed into law the Bipartisan Budget Act of 2015, and with that, significant changes have been made to the way the IRS will now look to audit entities taxed as partnerships at the federal level. For those entities previously subject to TEFRA (i.e., as TEFRA partnerships), and those subject to the ELP procedures, these entities will now be subject to a more streamlined approach. Under the new audit procedures, the partnership entity must appoint a representative who need not be a partner. That audit representative replaces the TMP. In addition, adjustments made with respect to a year under audit will create a tax underpayment that will impact the current year, whereby the impact of the prior year adjustments is felt at the partnership level, barring an election to pass through that tax burden to the partners. Practitioners must carefully consider how partnership and operating agreements may need to be amended to reflect these more streamline audit rules going forward. While the law is to apply to audits commencing in 2018, partnership entities can elect into the new procedures, commencing in 2016.
At the Tufts Law Firm, Mr. Tufts is sensitive to the extraordinarly complex issues and practical concerns that arise when disputes arise, and how dispute resolution techniques, if permitted, or otherwise how to address these issues, with proper adherence to the additional requirements under TEFRA, using IRS Form 8082. If advice or consultation is needed with respect to these issues, please do not hesistate to contact us.