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BLOG: IRS Releases Proposed Regulations on Centralized Partnership Audit Regime

November 30, 2020, www.PartnershipRepresentative.com

On November 20th, the IRS released proposed regulations (REG-123652-18) regarding the centralized partnership audit regime created by the Bipartisan Budget Act of 2015.  First, these proposed regulations provide that partnerships, that have a partner that is a qualified subchapter S subsidiary (“QSub”), are not eligible to elect out of the centralized partnership audit regime.  In general, a partnership may elect out of the centralized partnership audit regime if it has 100 or fewer partners and each of those partners is an “eligible partner.”  The proposed regulations provide that a QSub is not an “eligible partner” for this purpose.  In the preamble to the proposed regulations, the drafters indicated that this designation was driven by a concern that treating a QSub as an eligible partner would allow partnerships that effectively have more than 100 partners to elect out of the centralized partnership audit regime in contravention of the statute’s requirements.

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