United States

Tax accounting considerations under IRS partnership audit regime


The Bipartisan Budget Act of 2015 includes rules for audits of partnerships (IRS partnership audit regime) that allow the IRS to assess and collect underpayments of tax from the partnership rather than pursuing payment from the partners unless the partnership elects to pass the adjustments through to its partners. The American Institute of Certified Public Accountants recently issued a technical question and answer document, which concludes that in the case of the IRS partnership audit regime, the collection of tax from the partnership is merely an administrative convenience on the part of the government to collect the underpayment of income taxes from the partners in previous periods. Accordingly, the income taxes on partnership income, regardless of when paid, should be attributed to the partners and, therefore, the partnership would not apply the model in Financial Accounting Standards Board Accounting Standards Codification Topic 740, Income Taxes, to account for amounts it pays to the IRS for previous underpayments of tax, interest and penalties. Rather, a payment made by the partnership under the IRS partnership audit regime should be treated as a distribution from the partnership to the partners in the financial statements of the partnership.