2018 Tax Filing Season: More Than Just Tax Reform

Now that you have made it to January, your accounting teams are likely focused on finishing year-end, preparing for your financial statement review or audit, and gathering necessary information for your CPA to prepare your tax return. While most dealers are aware of the many changes affecting them from the Tax Cuts and Jobs Act, it is important to remember that tax reform is not the only subject dealers should be thinking about this tax filing season. Some of the most forgotten changes that go into effect this year for all legally organized partnerships are the revised partnership audit rules. These rules were enacted in 2015 but became effective for tax years beginning in 2018. Here, we will highlight the rules and what steps you should consider to take proactive action now to ensure you are in compliance.

What are the key points associated with the new partnership audit rules?

  1. Partnerships will now be audited at the entity level instead of the partner level, and the default rule is that any taxes due will be paid by the partnership instead of at the partner level.
  2. Each year the partnership must designate a “partnership representative” who will have the sole authority to act on behalf of the partnership (this replaces the previously appointed “tax matters partner”). This means partners will no longer have a legal right to receive notices or participate in an IRS audit.
  3. Partnerships that have 100 or fewer “eligible partners” may elect to opt out of the new rules and be audited at the partner level under the “old” rules.
  4. Partners who fail to address these new rules will find that they have effectively made a series of default decisions that will drive the outcome of an audit if and when it occurs.

If you are a dealership entity organized as a partnership, here are some of the immediate action items you should consider.

Author

Tara Thomas
Senior Manager, DHG Dealerships
dealerships@dhg.com