Are You Required to Elect a Partnership Representative?
Published on by Laura Hunter in Real Estate
This blog is part of an ongoing series highlighting tips and strategies that could help you benefit from or better manage your real estate interests. Be sure to check back to our Real Estate blog frequently to learn more. Read Part one here.
Did you Know: Partnership Representatives
Did you know that some Partnerships will be required to elect a Partnership Representative for tax years beginning after December 31, 2017? This Partnership Representative (PR) is NOT the same as the old Tax Matters Partner. This individual will act as an intermediary with the IRS on behalf of the partnership, current partners, and reviewed-year partners. All the PR’s acts and elections are legally binding. An eligible partnership may “opt-out” of these new rules. To be eligible, a partnership must have less than 100 individual partners. If one of the partners is a corporation, partnership, single-member LLC, or trust – the entity is not eligible to elect out.
Under the new law, partnerships that are not eligible to elect out, are directly liable for the additional tax, interest, and penalties. This tax is calculated using the highest individual or corporate marginal rate. This calculation could lead to a higher overall tax liability, as well as mismatching of the liability (as partners can change from year to year). The PR can make an election to have the adjustment “pushed out” to the reviewed-year partners if timely made. Only the PR can make the election and it’s binding on all review-year partners.
Given the power of this new Partnership Representative role, several partnerships are amending partnership agreements to designate this individual, their responsibilities and requirements, and have a sign off from all current partners. Keep in mind that any year a Partnership Representative isn’t designated on the return, the IRS has the authority to designate whomever they like.
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