How the partnership audit procedures may affect your partnership There are specific  partnership audit procedures that apply for partnership tax years beginning after 2017. As under the pre-2018 partnership audit rules, the IRS audits partnerships at the partnership level. However, under the post-2017 partnership audit procedures, the adjustments are ordinarily imposed at the partnership level and partners do not have the opportunity to opt out of the partnership procedures. Partnerships must designate a partnership representative with a substantial presence in the U.S. The partnership representative will have the authority to bind the partnership; if no partnership representative is appointed, the IRS will designate one. In general, it makes sense for partnership to designate their partnership representatives when they are formed. A partnership may elect out of the partnership audit procedures if (i) the partnership is required to furnish 100 or fewer statements to partners or nominees for the year, treating each statement that must be furnished to an S corporation shareholder as a separate statement and (ii) each statement the partnership is required to furnish for the year is furnished to an individual, a C corporation, a foreign entity that would be treated as a C corporation if it were a domestic entity, an S corporation, or an estate of a deceased partner. Thus, if statements have to be furnished to partnerships, trusts, foreign entities not described above, disregarded entities, estates of individuals other than a deceased partner and any person that holds an interest on behalf of another person, the partnership cannot make the election. A partnership must make the election on its timely filed return for the tax year to which the election applies and must notify its partners of the election within 30 days of the day it makes the election. Under the partnership audit procedures, the IRS may make adjustments to (i) any item or amount relating to the partnership that is relevant in determining the income tax liability of any person and (ii) any partner's distributive share of any such item or amount. In general, an imputed underpayment will be determined (a) by netting all partnership adjustments for the reviewed year and (b) applying the highest individual or corporate tax rate to the adjustments. Special rules apply so that items of different characters aren't netted against each other. The partnership audit procedures provide partnerships with the opportunity to suggest modifications to imputed underpayments. Thus, a partnership that receives a notice of proposed partnership adjustment (NOPPA) may request a modification of the imputed underpayment based on various grounds, including the character of its partners (e.g., a tax-exempt organizations). The IRS may file a notice of a final partnership adjustment (FPA) no earlier than 270 days after the NOPPA is filed. Thus, a partnership has at least 270 days to request a modification of an imputed underpayment. Although imputed underpayments, and interest and penalties, are ordinarily imposed at the partnership level, the partnership may elect to have imputed underpayments taken into account at the partner level. If the election is made, the partnership must provide statements to each of its partners notifying the partner of its portion of the imputed underpayment and the partners would have to pay their portions of the imputed underpayment and the interest and penalties. An FPA is the equivalent of a notice of a deficiency and gives the partnership the right to file a readjustment petition in Tax Court within 90 days of the FPA. The partnership may also file a readjustment petition in a district court or the Court of Federal Claims, but it must pay the tax before it files a petition in those courts. A partnership is also allowed to file an administrative adjustment request (AAR) to adjust partnership-related items unless it has received a notice of an administrative proceeding from the IRS.