Is the IRS Auditing Your TEFRA Partnership?
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TEFRA
If you are a partner in a partnership with eleven and more partners, you are a partner in a TEFRA partnership.
The audit procedures for a TEFRA partnership are one of the most complex in the Internal Revenue Code. The partner known as the Tax Matters Partner acts as the liaison between the IRS and the partners.
The Tax Matters Partner (TMP) is responsible for keeping partners informed of tax administrative and judicial proceedings relating to the partnership. The TMP has the authority to extend the statute of limitations for assessment with respect to partnership items on the behalf of all partners.
He can bind partners holding less than 1% interest in the partnership to a settlement with the IRS and determine in forum to litigate a partnership controversy.
Due to the complexity of the TEFRA audit procedures, the IRS in many instances fails to follow all of the required procedures for the examination of the partnership. Further, there may be instances that the TMP and the remaining partners may have a conflict of interest as to specific matters which you may not be aware.
The audit of a TEFRA partnership can be appealed to the Appeals Division and if needed can be litigated in the Tax Court or Court of Federal Claims.
All of these appeals are complex and full of unexpected results to the unwary partner.
You may have been assessed a deficiency based on an audit of a TEFRA partnership and not know it, until you receive a bill from the IRS for the deficiency. TEFRA deficiencies are assessed through computational adjustments, which means you have no appeal rights.
The appeal rights are through the TMP, if he did not exercise them; those appeal rights are expired. So its up to you to be in contact with the TMP when the partnership is being audited and keep current with the proceedings.
There are instances where the IRS has made an assessment of a deficiency attributable to TEFRA partnership adjustment that was not valid and the partner simply paid the deficiency amount without questioning it.
If your TEFRA partnership (eleven or more partners) is being audited, you need to know what is going on because your interest with the TMP may conflict.
If you are a partner in a TEFRA partnership that is being audited, you need someone from the outside of the partnership to inform you of your best plan of action that you should take.
 
What is TEFRA, an INTRODUCTION
This chapter is designed to give the reader a basic understanding of TEFRA (the Tax Equity and Fiscal Responsibility Act of 1982) and is not intended to be a fully comprehensive work. Certain topics are covered by referencing statutes, regulations, or the Internal Revenue Manual (IRM) rather than by way of narrative text.
The Resources section lists several published sources which, when viewed together, should present a fully comprehensive and up-to-date picture of TEFRA.  In addition, there is a web-based self-study course, TEFRA Basics, which can be taken online at the Enterprise Learning Management System (ELMS) website.
Once you have registered and created a profile on the ELMS website, TEFRA Basics can be found as ELMS Component Number: 11381.
Another important TEFRA tool for the examiner is the IRS Intranet consolidated TEFRA website.
This chapter will address TEFRA only as it applies to TEFRA partnerships and TEFRA related partners.  It is important to note that Limited Liability Companies (LLCs) and Real Estate Mortgage Investment Conduits (REMICs) that file a Form 1065, U.S. Return of Partnership Income, and their respective members are also subject to TEFRA administrative and judicial procedures and treated in a manner similar to TEFRA partnerships and their partners.
IRC section 6244 extended the TEFRA partnership provisions to S corporations for tax years beginning after 1982. The Small Business Job Protection Act of 1996 repealed the TEFRA administrative and judicial procedures for S corporations for tax years beginning after Dec. 31, 1996.
TEFRA as it applies to S corporations and REMICs will not be covered in this chapter.  Non-TEFRA partnership statute considerations and procedures are also not covered in this overview.  The procedural differences between TEFRA and non-TEFRA are significant.
For non-TEFRA considerations, examiners should consult IRM 4.31.5 & 6 of the Pass-Through Entity Handbook, and IRM 4.29, Partnership Control System (PCS) Handbook.
IRC sections 6221 through 6234 govern audit, administrative, and judicial procedures, as well as certain filing requirements to be used by entities qualifying as TEFRA partnerships.
These procedures are commonly referred to as “unified proceedings”, “TEFRA proceedings”, and “partnership proceedings.”  These Code sections provide that examination, administrative, and judicial actions are to be conducted at the partnership-level.
Final Regulations were issued and are effective for taxable years beginning on or after October 4, 2001 (66 FR 50541, Treas. Reg. sections 301.6221-1 through 301.6233-1).  For taxable years beginning before October 4, 2001, the Temporary Treasury Regulations continue to govern (see Treas. Reg. section 301.6221-1(f)).  The Final Treasury Regulations are substantially similar to the temporary regulations.