DOC 2024-31195
Posted on Oct. 30, 2024 By Jenni Black
Jenni Black is a managing director at Citrin Cooperman and leader of the tax procedure and controversy practice of the firm’s National Tax Office. She thanks Lee Meyercord and Kate Kraus for all their comments and suggestions in writing this post. In this post, Black addresses what adjustments are required to be included on administrative adjustment requests and how the IRS can make adjustments to them, and she provides practical tips for practitioners preparing such requests. JENNI BLACK
One of the hottest topics related to the centralized partnership audit regime enacted under the Bipartisan Budget Act of 2015 is administrative adjustment requests (AARs) under section 6227. AARs are the mechanism that a BBA partnership must use if it needs to revise a previously filed partnership return.1 In an AAR, any adjustments to partnership-related items (PRIs)2 are taken into account under rules similar to section 6225 (paying an imputed underpayment (IU)) or section 6226 (push out).3 Within this hot topic, one of the most frequently asked questions is what adjustments are required to be included on the AAR and how the IRS can make adjustments to an AAR. This article will attempt to alleviate some of the apprehension around adjustments reported on AARs as well as provide some practical tips for those preparing AARs, a topic I will return to in a follow-up article.
Inability to Push Out IRS Adjustments to the IU One reason for practitioner anxiety is the potential consequence if the partnership computes the IU incorrectly. The IU is a partnership-level liability computed on adjustments to PRIs (as relevant here, the adjustments on the AAR).4 If the partnership chooses to pay the IU with the filing of an AAR but miscalculates the amount of that IU, the IRS could audit the partnership and determine the IU paid by the partnership should have been higher. As the IU is calculated on adjustments, and not how an item would have been taxed (or not) had it been reported on the original returns, practitioners are often concerned that, if they miscalculate the IU, the IU they thought was small could balloon into a large, unexpected amount. If the partnership chose to pay the IU with the AAR instead of electing to
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Practical Tips for Preparing an Administrative Adjustment Request