IRS Auditing Your 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.
A client may have been assessed a deficiency based on an audit of a TEFRA partnership and not know it, until he receive a bill from the IRS for the unpaid balance. TEFRA deficiencies are assessed through computational adjustments, which means you have no appeal rights.
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.
The appeal rights are through the TMP, if he did not exercise them; those appeal rights are expired. So its up to your client to be in contact with the TMP when the partnership is being audited and keep current with the proceedings.
If a taxpayers is the TMP of the partnership, he needs to be represented through the Examination process and the Appeals process so that the TMP makes the correct decision for the partnership.
He should decide whether he wants to bind the partnership to a settlement or let all of the remaining partners make their own decision.
If the taxpayer is a partner in the partnership, but not the TMP; he needs to make sure that the TMP is informing him of the progress of the examination.
He needs to know that the TMP has your client’s interest and whether to appeal the outcome of the partnership audit.
If your client was assessed a deficiency attributable to a TEFRA partnership audit, he needs first to know whether the assessment was valid. For the assessment to be valid, the correct waivers needed to be signed  and properly executed by the IRS.
If you did not agree to the assessment, the taxpayer should ascertain that the IRS correctly assessed the tax. If the tax deficiency was properly assessed, you needs to ascertain that the correct deficiency was assessed.
If the assessment is invalid, the IRS must abate the assessment. If the amount assessed was valid, but was incorrect in the amount, the IRS, must abate the tax to reflect the correct amount.
If you are a taxpayer who is a partner in a TEFRA partnership and it is being currently examined, we can guide you through the TEFRA procedure to the best possible conclusion.
If you  have been assessed a deficiency attributable to a TEFRA partnership adjustment, we can determine whether the assessment was valid and whether the amount assessed was correct.
If the assessment was not valid, we will then request that the IRS abate the assessment in full. If the assessment was valid, but the amount assessed was overstated, we will then request that the IRS abate the assessment to reflect the correct amount.
Our staff includes individuals who have been Appeals Officers who have dealt with TEFRA partnership issues and who understand the complex TEFRA code sections and procedures. They are aware of the necessary documents that need to be obtained from the IRS to properly evaluate issues.
For the record if you are a tax practitioner we can help you and your client. Please feel free to contact us.