United States: BBA Tax Audits: Final Deadline For Designating A U.S. Partnership Representative

Key Points

  • U.S. and non-U.S. investment funds that are required to file, or file, a U.S. partnership tax return (Internal Revenue Service (IRS) Form 1065) are generally subject to a new U.S. partnership audit regime that permits the IRS to assess and collect U.S. tax at the fund level.
  • To comply with the new audit regime, funds that have yet to file their U.S. partnership tax return for the 2018 taxable year must designate a "partnership representative" (and its designated individual, if any) on such tax return no later than September 16, 2019 (October 15, 2019 for certain large electing partnerships).
  • The partnership representative has the sole authority to act as the fund's representative in the case of an audit and must have a "substantial U.S. presence."

The U.S. Bipartisan Budget Act of 2015, as amended (BBA), significantly overhauled the audit regime applicable to U.S. and certain non-U.S. investment fund vehicles that are taxed as partnerships for U.S. federal income tax purposes. In general, under pre-existing audit rules, enacted under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), adjustments are made in fund level audit proceedings, but flow through to the investors, and any associated tax must also be assessed by the IRS at the investor level. Under the BBA audit regime, which is generally effective for audits with respect to taxable years as of January 1, 2018, by default, any audit adjustment will be taxed at the fund level in the year of the adjustment, and investors are expected to indirectly bear the economic burden of any tax collected, regardless of whether they were investors in the fund in the reviewed year (i.e., the year that is under audit). The amount of fund level liability may be avoided if the fund is eligible for, and makes, a timely "push-out" election, which requires investors in the reviewed year to take into account the audit adjustment. Alternatively, the fund may seek to reduce the fund level liability for the adjustment year by demonstrating that certain investors in the reviewed year were subject to a lower rate of tax, qualified as a "tax-exempt partner," paid any associated tax liability or reflected the audit adjustment in their tax attributes (which under a "pull-in" procedure may occur without filing an amended return). Similar rules may apply in states and localities for applicable tax audit purposes.

Funds subject to the new audit regime must designate a "partnership representative" who, in a significant departure from prior law, has the sole authority to act vis-à-vis the IRS and to bind the fund and its investors upon audit. By default, the partnership representative is not required to keep investors informed or seek consent when making decisions. The fund's partnership representative can be any person, including the fund itself or any unaffiliated third party, so long as such person has a "substantial presence" in the United States. This generally requires having a U.S. address, a U.S. telephone number, a U.S. taxpayer identification number and the ability to meet with the IRS in the United States at a reasonable time and place as determined by the IRS. If a fund designates a legal person as its partnership representative, then it must also designate a natural person (a "designated individual") to act on behalf of such legal person, and such designated individual must meet the substantial U.S. presence requirement. If a fund fails to appoint a partnership representative, or the IRS determines that the fund's designation is otherwise invalid (e.g., the partnership representative does not have a substantial U.S. presence), the IRS will generally notify the fund that it has 30 days to properly appoint a partnership representative and designated individual. If the fund does not timely take action, the IRS is authorized to make the relevant designations on the fund's behalf.

Many fund managers have designated a management company, or a U.S. based affiliate or employee thereof, as the partnership representative or designated individual. Managers who do not have this option have sought to engage an external service provider as the fund's partnership representative, specifically to address the need for a substantial U.S. presence. Managers who wish to appoint such service providers should carefully consider compliance with applicable regulations, including resignation and revocation procedures, as well as the impact of indemnities and other limitations under the fund's governing documents and side letters.

Fund managers who have not yet filed their U.S. partnership tax return for the 2018 taxable year and have yet to determine their partnership representative (and, if applicable, designated individual) should do so expeditiously. The extended deadline for filing U.S. partnership tax returns is September 16, 2019. Funds who have elected to be treated as "electing large partnerships" have until October 15, 2019.

For additional information on this topic, see previous Akin Gump Tax Alerts here and here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Lowndes, Drosdick, Doster, Kantor & Reed, P.A.
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Lowndes, Drosdick, Doster, Kantor & Reed, P.A.
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions