Tax Controversy Corner: Challenging Penalties Under the BBA

3 Pages Posted: 11 Mar 2019

Date Written: January 1, 2019

Abstract

The Bipartisan Budget Act of 2015 (the “BBA”) made substantial changes to the audit procedures for passthrough entities. This column discusses how partnerships and individual partners will be able to challenge penalties under the BBA procedures. The BBA repealed the prior rules for partnership audits and replaced them with a centralized regime that, in general, assesses and collects tax at the partnership level in the year that the adjustment is made. The BBA contains exceptions to the new rules, such as options to modify the adjustments through filing amended returns, or for partnerships to “push out” adjustments to the partners who were partners during the tax year that is audited.

The BBA and recently issued Proposed Regulations contain provisions on how penalties will be assessed. This column discusses how partnerships and partners can each raise their defenses to penalties under the new provisions.

First, an example may be helpful to illustrate the difference between a partnership and partner-level defense. If a partnership engaged in a tax shelter, but the partnership’s managing partner obtained independent opinions that the transaction was permissible, the partnership itself may have a reasonable cause defense to penalties based on reliance on the advice of a tax professional. If, however, the partnership’s reliance was not reasonable because the advisor also was a promoter of the transaction, the partnership will be liable for the penalties, but an individual partner may still have his or her own defense if he or she obtained a separate opinion from an independent and competent advisor.

Suggested Citation

Brackney, Megan L., Tax Controversy Corner: Challenging Penalties Under the BBA (January 1, 2019). Available at SSRN: https://ssrn.com/abstract=3337811 or http://dx.doi.org/10.2139/ssrn.3337811

Megan L. Brackney (Contact Author)

Kostelanetz & Fink, LLP ( email )

7 World Trade Center
34th Floor
New York, NY 10007
United States

HOME PAGE: http://www.kflaw.com

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