Federal and State Partnership Audit Defense: BBA Audit Regime, Imputed Underpayment, Push-Out Election, Nexus

The IRS recently announced it "… is accelerating our work in the partnership arena, which has been overlooked for more than a decade and allowed tax abuse to go on for far too long." It is also well known that they are using AI to better focus their efforts. These examinations are taking place, and the mechanics of calculating adjustments stemming from an IRS audit are far from clear-cut. Calculating adjustments arising from an IRS audit is a convoluted and necessary process.

As a result of an examination, the imputed underpayment arrives with Form 886-A, Explanation of Items, which details the calculation. Since the tax rate used for the adjustment is the highest individual tax rate, 37 percent for 2024, tax practitioners must give credence to the modifications available under Regs. Sec. 301.6225-2(d), which can substantially reduce the partnership's overall tax adjustment. The modifications allowed include adjustments for partners' pull-in adjustments, treaty modifications, a partner's tax-exempt status, and other situations that can result in a significantly lower tax adjustment.

Similarly complex and beneficial, a push-out election must be considered and calculated after an IRS assessment. This election allows a partnership to allocate adjustments to the partners in place for the year being examined. Prior to BBA, partners were audited rather than the partnership itself, and individual partners bore the burden of any additional tax liability. Flow-through advisers need to understand the mechanics and options available in response to IRS audit determinations.

Listen as our panel of pass-through experts provides examples of standard IRS audit adjustments, including appropriate steps to take to reduce the tax burden imposed as a result of an IRS audit of a partnership.

1. Introduction
   1. Brief overview of BBA regime
   2. Objective of training
2. Understanding the imputed underpayment (IU)
   1. Concept of the imputed underpayment
   2. Base calculation formula
   3. IRS determination of adjustments
3. Modifying the imputed underpayment
   1. Options for modification
   2. Available modification methods
   3. Process and timeline for modifications
4. Push-out election process
   1. What is the push-out election
   2. Push-out election timeline
   3. Calculation of partner-level tax from push-out
   4. Example calculation
5. Decision-making: pay IU vs. push out
6. Nexus
7. State audit process
8. Preparing for state and local tax income tax audits

The panel will review these and other critical issues:

• The BBA audit regime's impact on IRS examinations of partnerships
• How the imputed underpayment is calculated
• Tax-saving modifications to the imputed underpayment available under Regs. Sec. 301.6225-2(d)
• When a partnership should consider a push-out election
• Detailed examples including the mechanics of calculating and allocating push-out adjustments

Learning Objectives

After completing this course, you will be able to:

• Identify available modifications to an imputed underpayment
• Determine how the BBA audit regime impacted IRS audits of partnerships
• Ascertain when a partnership should consider a push-out election
• Decide what modifications are available to imputed underpayment adjustments

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years+ business or public firm experience preparing complex tax forms and schedules, supervising other preparers or accountants. Specific knowledge and understanding of pass-through taxation, including taxation of partnerships, S corporations and their respective partners and shareholders.

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.

IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).