Following the passage of The Bipartisan Budget Act of 2015 (the “BBA”) in the United States the new partnership audit rules of the U.S. Internal Revenue Services (IRS) will be effective for the tax year beginning January 1st, 2018.
This new audit rules will replace the Tax Matters Partner and require partnerships to appoint a Partnership Representative for each tax return reported on “Form 1065”.
The new partnership audit rules apply to domestic LLCs taxed as partnerships as well as to domestic and foreign partnerships, including any foreign partnerships and mutual funds domiciled in the Cayman Islands and the BVI treated as partnerships under IRS rules which are required to file partnership returns in the US.
The major requirements of this new rule stipulate that the “Partnership Representative” must be a person with substantial presence in the United States. Substantial presence means that the Partnership Representative has to meet the following requirements and be in possession of:
1. a U.S. tax identification number
2. a U.S telephone number and a U.S street address
3. be available to meet in person with the IRS at a reasonable time and place, and
4. if the Partnership Representative is an entity, the partnership must appoint an individual who meets the substantial presence requirements to act as the “designated individual” of the entity serving as Partnership Representative.
It is important to note that the Partnership Representative has the power to bind the partnership and all partners with respect to the audit process. Furthermore if a partnership does not appoint its own Partnership Representative, the IRS can unilaterally select any person to service in such capacity having the power to bind the partnership and all of its partners.
Advanced Fund Administration has offices in both the US (New Jersey) and the Cayman Islands and provide full fund administration and legal services for all fund structures. This includes onshore and offshore entities.
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