The enactment of Tax Equity and Fiscal Responsibility Act of 1982 (“TEFRA”) means that your partnership may be vulnerable to large tax assessments because of your relationship with your business partner. In general, partnerships are more susceptible to financial stress than are other business entities, simply because partners can each be held individually responsible for a business’s debt and partner’s wrongdoings.
The IRS does not view the partnership as a single, unified entity, such as it does a corporation, even though the partnership does file a partnership return. To the IRS, each partner is individually liable for tax debt. Each partner individually reports income from the partnership and pays taxes accordingly, based on data supplied from the partnership. However, if any irregularities in the figures reported to the IRS trigger an audit, rather than reviewing a partner’s return, under TEFRA, the IRS generally audits the partnership’s books and returns, applying profits and losses to the individual partners’ returns.
If the IRS finds the partnership’s filings to be inaccurate, then the partners can appeal. If the IRS’s findings are upheld, and the income and losses are determined valid at the Appeals level, the partners face internal dispute, limited to contesting the IRS’s final figures on partner-level defenses.
If your partnership is under audit, or if you are concerned about responsibility for a partner’s debt, call our tax boutique. We can assist you in all areas of financial matters, ensuring that your rights as a taxpayer are observed. We will:
Review your partnership’s books, searching for inconsistencies and inaccuracies in the figures.
Investigate for causes for exclusion from TEFRA.
Research all defenses, including the statutes of limitations pertinent to your situation.
Advise you of your rights and options.
Intervene on your behalf with the IRS, ensuring that your interests are protected and limiting the chances that the audit will be extended to include additional tax years.
And consult with you concerning optimum methods for reducing the risk for future partnership disputes involving tax liability.
Contact us at Law Offices of Christy Lee, P.C., to secure the financial footings of your partnership. An investment in sound counsel from our team of professionals will help guarantee that your partnership operates on nominal risk to you and that any IRS issues are dealt with efficiently and equitably for all parties involved.