New Proposed Regulations for BBA Partnership Audits Allow for Push Out Elections in Tiered Partnerships
V&E Tax Update
E-communication, December 19, 2017
This e-lert focuses on certain issues regarding “push out” elections under the BBA partnership audit regime. Those elections are discussed in more detail in the article accompanying the October 4, 2017 e-lert.
Almost lost in
Friday’s tax reform frenzy was the release of additional proposed regulations
regarding the new partnership audit regime under the Bipartisan Budget Act
(“BBA”). Most importantly, those proposed regulations answer IN THE
AFFIRMATIVE the critical question of whether “push out” elections will be
available in tiered partnership structures.
process for push out elections through a tiered structure works as cascading
elections available throughout a chain of tiered partnerships. At each
level, a partnership that is a direct or indirect partner in the audited
partnership has the ability to itself make a push out election or else pay its
own imputed underpayment relating to the audit adjustment. If the
upper-tier partnership makes a push out election, it is generally subject to
same reporting requirements as imposed with respect to the original push out
election made by the audited partnership. If the upper-tier partnership
does not make a push out election — either because it decides not to or because
the deadline for making that election has passed (see below), then the
upper-tier partnership must pay its imputed underpayment amount as determined
under the statutory provisions of the BBA.
new proposed regulations do not impose a limit on the number of tiered partnerships
through which cascading push out elections may be made. However, as noted
above, there is a single time period for making any and all such cascading push
out elections. That limit is the extended due date for filing the tax
return for the audited partnership for the tax year in which the adjustments
become final. For example, assume there is an audit for Partnership ABC’s
2018 tax year which is resolved in 2020 with agreed adjustments. The
deadline for push out elections with respect to those adjustments is the
extended due date for Partnership ABC’s 2020 tax return — or September 15, 2021
assuming a calendar tax year. Assuming Partnership ABC makes a push out
election, and if the partners in Partnership ABC include partnerships, those
upper-tier partnerships can themselves make push out elections, but all such
elections must be made by September 15, 2021. Like the push out election
at the audited partnership, the push out election at an upper-tier partnership
pushes out the adjustments to partners in the partnership during the reviewed
year (i.e., 2018 in this example).
there are multiple layers of tiered partnerships, these cascading elections
will create time pressures on making the elections and furnishing the required
statements in order to give partnerships further up the chain time to
themselves make push out elections. Any partnerships in the chain that do
not make the push out election before the deadline will be required to pay
their imputed underpayment amount with respect to their allocable share of the
adjustments. Also, the availability of push out elections in tiered
structures is not limited to upper-tier partnerships but also includes S
corporations, certain trusts, and decedents’ estates.
In addition to tiered push out elections, the new proposed
regulations address other mechanical issues relating to the BBA. These
include issues relating to assessment, collection, penalties, interest and
period of limitations. These latest proposed regulations do not address the impact on capital accounts and basis from BBA adjustments and tax
payments. Those issues should be addressed in future regulations.
Visit our website to learn more about V&E’s Transactional Tax
practice. For more information, please contact Vinson & Elkins lawyers Ryan
Carney, David Cole, George Gerachis, Gary Huffman, David Peck, or Todd Way.