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Electing Out of the New Partnership Rules

Beginning in 2018, partnerships (meaning an entity treated as a partnership for tax purposes) generally are subject to the new partnership audit rules.1 Partnerships may elect out of the new partnership audit rules if they (1) have no more than 100 partners; and (2) each partner is either an individual, a domestic C corporation, a foreign entity that would be C corporation if it were a domestic entity or an estate of a deceased. A partnership that has an S corporation as a partner also can qualify if it satisfies the 100-partner limitation treating each of the S corporation shareholders as partners.

The election out must be made annually on the partnership's tax return, and does not need to be made on the request for extension. If a partnership elects out of the new partnership audit rules, the partnership audit will be conducted at the partner level (as opposed to the partnership level).

Partnerships and their partners should consider whether or not to make the election, as there are "pros" and "cons" for making the election, and the decision may turn on the partnership's particular circumstances.

1 For more information, please see Katten's August 7, 2017 advisory, "New Partnership Audit Regime Set to Take Effect in 2018, Proactive Planning Recommended," and July 12, 2018 advisory, "Are You Ready for the New Partnership Audit Regime?," discussing the new partnership audit rules.

©2023 Katten Muchin Rosenman LLPNational Law Review, Volume IX, Number 72

About this Author


Jill E. Darrow is head of Katten's New York Tax Planning practice. She concentrates her practice in tax planning and tax law with a focus on partnership transactions, financial services, hedge funds, commodities funds and real estate.

Jill advises clients on all aspects of tax with a concentration in the areas of financial services and real estate. Her practice covers the tax aspects of transactions involving partnerships, limited liability companies, carried interests, subchapter S corporations, regulated investment companies (mutual funds), recording and...

Valentina Famparska, Katten Muchin, management compensation lawyer, real estate investments attorney

Valentina Famparska concentrates her practice in the area of federal income taxation, focusing in private equity-backed investments, management compensation, partnerships, real estate investments, and mergers and acquisitions. She works closely with the firm’s Corporate, Financial Services and Real Estate practices.

Valentina is co-author of the article "Use of Restricted Stock as Equity Incentive Compensation," a Business Tax Article for the May 2004 Illinois Law Issue for President and CEO Magazine. Valentina is also a co-author of the...

Robert Loewy, Tax Legal Specialist, Katten Muchin Law firm
Special Counsel

Robert Loewy concentrates his practice in tax planning and litigation.

Robert advises domestic and foreign clients on a broad range of US and international tax issues. His practice is both transactional and advisory, focusing on the taxation of financial instruments and products, hedge funds and private clients. He also has extensive experience in advising clients as to the tax consequences of domestic and cross-border mergers, acquisitions and restructurings.

Glenn S. Miller, Tax Legal Specialist, Katten Law Firm

Glenn Miller brings a creative, problem-solving approach to the tax issues present in a wide range of domestic and international transactions and controversies, including taxable and tax-free acquisitions and dispositions, financing structures (both taxable and tax-exempt), and post-transaction tax planning affecting both buyers and sellers. He has particular experience with structured finance and securitization transactions and transactions involving investments by pension funds, real estate investment trusts (REITs) and tax-exempt organizations in real estate and other...

Saul E. Rudo, Tax Planning lawyer, Katten Law Firm

Saul E. Rudo is the national head of Katten's Tax Planning practice, a member of the firm’s Board of Directors and the Executive Committee. He concentrates his practice in the area of tax and corporate planning for private equity, venture capital, mergers and acquisitions and international transactions and investment and management compensation arrangements.

Saul’s clients say that he "represents a fine choice for issuers, investors, bankers and trustees seeking representation" (Chambers USA). In 29 years at Katten, he has represented...