KPMG report: Partnership audit rules and specific IRS forms

Partnership audit rules enacted by the BBA have altered how partners report and pay tax on adjustments

Partnership audit rules enacted by the BBA

The partnership audit rules enacted by the “Bipartisan Budget Act of 2015” (BBA) have significantly altered how partners report and pay tax on both IRS-initiated and partnership-initiated adjustments to prior-year partnership-related items.

Under the BBA, partners generally take into account prior-year adjustments by determining the chapter 1 tax increase or decrease that results from those adjustments and by reporting that increase or decrease on the partner’s current-year income tax return. The instructions to various income tax forms prescribe how partners should reflect this tax increase or use the tax decrease, as applicable, when determining the income tax for the current year.

Read an April 2024 report* prepared by KPMG LLP tax professionals that:

  • Explores the form instructions to demonstrate how taking into account prior-year BBA adjustments in accordance with the instructions can lead to surprising outcomes
  • Provides a background for the BBA rules
  • Examines the statutory and regulatory requirements for making BBA adjustments
  • Focuses on the alternative minimum tax (AMT) and explains how the instructions for computing AMT interact with the BBA reporting rules
  • Explores the rules for using income tax credits and explains how the form instructions establish an ordering framework for applying amounts determined under the BBA when using those credits

* This article originally appeared in Tax Notes Federal (April 1, 2024) and is provided with permission.



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