If you are an owner in a partnership or limited liability company filing Form 1065, Partnership Income Tax Return, there’s a new chore to do this year on the 2018 return: naming a partnership representative (PR).
Here is the who, what, and how of this important business chore. Remember, while you may have a CPA or other tax professional complete the return for your business, it’s up to you to appoint a PR.
Who is a PR
A partnership representative is the person who is the key player in partnership audits under the centralized audit regime that applies to tax years beginning after December 31, 2017 (i.e., 2018 returns filed in 2019). This person replaces the former audit leader, who was called a tax matters partner (TMP).
The PR can be any person designated by the partnership, including an individual or an entity. If it’s an entity (including the partnership itself acting as PR), then the partnership must name a designated individual with whom the IRS can communicate.
The PR does not have to be a partner. But the PR must have a substantial presence in the U.S. (a U.S. street address, telephone number, and taxpayer identification number) so he or she is available to meet with the IRS at a reasonable time and place.
What is the role of a PR
The PR had broad authority to act on behalf of the partnership and can make all decisions during the IRS examination. In fact, except for the PR or the designated individual, “no partner, or any other person, may participate in an administrative proceeding without the permission of the IRS.” The PR can bind the partnership and its partners to any audit settlements.
If your company wants to place some restrictions on its PR to the extent permissible, such as requiring notification to partners after IRS communications, then you should consider amending the partnership agreement.
How do you appoint a PR
Appointing a PR is an annual chore that’s done directly on the partnership’s tax return. More specifically, unless a partnership opts out of the centralized audit regime (an election open to partnerships furnishing no more than 100 Schedule K-1s to certain types of partners), the designation of partnership representative is made at the bottom of page 3 of Form 1065.
If you want to learn more about the PR and about the rules for resignations and other PR issues, you could read through lengthy final regulations. Otherwise, talk this over carefully with your CPA or other tax advisor.