International Partnerships: What You Need to Know About the Audit Process

Articles/News, Offshore Account Update

Posted on June 16, 2023 |

For international partnerships, facing a federal tax audit is a complicated and high-risk proposition. The Internal Revenue Service (IRS) is heavily focused on enforcing partnership tax compliance, and under its BBA Centralized Partnership Audit Regime, it is taking a rigorous and structured approach to examining partnerships’ returns.

The Major Steps in an IRS International Partnership Tax Audit

There are several steps in the tax audit process under the BBA Centralized Partnership Audit Regime. Here is an overview of what partners in international partnerships need to know:

  • Notice of Selection for Examination – The IRS notifies an international partnership that it has been selected for an audit by issuing a Notice of Selection for Examination.
  • Notice of Administrative Proceeding – About 30 days after sending the Notice of Selection for Examination, the IRS will send a Notice of Administrative Proceeding. This indicates that the audit process is formally underway.
  • Summary Report – After conducting its review, the IRS will issue a summary report explaining its findings and stating the partnership’s imputed underpayment amount.
  • 30-Day Letter Package – Unless the partnership consents to the IRS' findings the IRS will next send a 30-day letter package. This package explains the partnership’s appellate rights and the conditions for filing an appeal.
  • Appealing Issues in the Summary Report – If the partnership chooses to file an appeal, it can file a protest and the IRS’ examiner can file a rebuttal. The appeal will then be heard by the IRS’ Independent Office of Appeals.
  • Notice of Proposed Partnership Adjustments (NOPPA) – Following the appeal, the IRS will issue a NOPPA stating the outcome of the appeal and the reasons for the IRS’ decisions.
  • Request for Modification of Imputed Underpayment – If the international partnership disagrees with the findings in the NOPPA, it can submit a request for modification of the IRS’ imputed underpayment. This request will be reviewed by the IRS' BBA Operations Department.
  • Appeal After Modification Determination – If BBA Operations denies the request for modification, the partnership can request a second appeal with the Independent Office of Appeals.
  • Notice of Final Partnership Adjustments – Finally, the IRS will issue a Notice of Final Partnership Adjustments. If the international partnership disagrees with the IRS’ final decision, it can then pursue appropriate remedies in federal court.

International partnerships and their counsel can—and should—play an active role in the audit process under the IRS’ BBA Centralized Partnership Audit Regime. By engaging experienced counsel, international partnerships can ensure that they have every opportunity to avoid unnecessary liability—and unnecessary steps in the process. If the IRS is auditing your international partnership in New Jersey, we encourage you to contact us promptly for more information.

Contact International Partnership Tax Lawyer Kevin E. Thorn in New Jersey

Kevin E. Thorn, Managing Partner of Thorn Law Group, represents international partnerships in IRS audits and other complex federal tax matters. To discuss your partnership’s audit with Mr. Thorn in confidence, call 201-842-7696 or send us a message online today.

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