What CPAs Need to Know About the BBA Audit Rules

A partnership-level audit notice does not look like the audits most CPAs are used to managing. The IRS sends Letter 2205-D to the partnership itself, and the entity’s only point of contact with the agency from that point forward is its partnership representative. A partnership must designate one on its return for each tax year, and if the IRS determines no valid designation is in effect, the partnership has 30 days from that notification to file Form 8979 before the IRS designates one itself. Either way, the partnership and its partners are bound by that representative’s actions, including settlements and agreed adjustments, whether the partnership chose the representative or the IRS did.

This is the centralized partnership audit regime enacted under the Bipartisan Budget Act of 2015, generally referred to as the BBA rules. Lincoln PLLC’s tax law practice covers the partnership and business tax matters that sit at the center of these examinations, and the firm works directly with referring CPAs when a client’s matter moves into this territory.

How the BBA Changed Partnership Audits

Under TEFRA, a partnership designated a tax matters partner, and individual partners retained the right to participate in the examination and challenge a proposed adjustment. The BBA replaced that model for partnership tax years beginning in 2018 and after. The IRS now assesses and collects any imputed underpayment directly at the partnership level rather than through each partner’s individual return.

Partners no longer have an independent right to participate in or challenge a partnership-level adjustment once a BBA audit is underway. According to the IRS BBA partnership audit process, the partnership’s sole point of contact with the agency is the partnership representative, and only the partnership or its designated representative receives notices at each stage of the examination.

Why the Partnership Representative Designation Matters

The partnership representative has sole authority to act on behalf of the partnership in a BBA audit, and that authority extends to extending statutory deadlines by agreement, entering settlements, agreeing to adjustments, and electing to push out an adjustment to the partners instead of paying it. None of those actions require separate sign-off from the individual partners.

The options available to a partnership under exam open and close at different stages, and missing a window closes it permanently. After the Notice of Administrative Proceeding issues, the partnership can no longer file an Administrative Adjustment Request for that year. Before the next notice issues, the partnership representative still has a chance to dispute the audit on the merits: if at least 18 months remain on the section 6235 statute, the representative can request an Appeals conference on the issues raised in the summary report. Once the Notice of Proposed Partnership Adjustments is issued, the representative has 270 days to request a modification of the imputed underpayment, a window that can be extended or partially waived by agreement. A push-out election, transferring the adjustment to the partners who held an interest during the year under examination, can only be made after the Notice of Final Partnership Adjustments issues, and the window is a hard 45 days with no extension available. A CPA whose client is moving through this process needs to know exactly which notice has been issued, because the available options differ at every stage and some of those deadlines cannot move at all.

Why This Is a Referral

Actively managing a BBA audit often conflicts with the time demands of return filing, and it comes up rarely enough that few CPAs have built a workflow around it. Referring a BBA audit to counsel who handle these matters frees up a CPA’s time and staff for other work.

Contact Lincoln PLLC Today

Looking for a tax attorney who can step in the moment a BBA notice lands, or confirm your client’s partnership representative designation before one ever does? Lincoln PLLC is a Charlotte-based tax and business law firm built for exactly this kind of referral. Erik Lincoln, founding member, is both an attorney and a CPA, and works directly with referring CPAs on partnership representative designations and BBA examination strategy.

Contact Lincoln PLLC to discuss a specific notice or designation question.

Erik Lincoln is a founding member of Lincoln. In addition to being an attorney he is also a CPA. Erik has consistently been recognized as one of the top attorneys in North Carolina, by Business North Carolina.