Designation of the Partnership Representative
Federal partnership audit rules require partnerships to designate a representative to act on behalf of the partnership and its partners. Several states have enacted centralized partnership audit rules like the federal regime. Given the broad authority granted to the partnership representative, care should be taken in choosing that person.
Several states have adopted the Multistate Tax Commission (MTC) model partnership audit statute or similar provisions. The MTC statute adopts the federal partnership representative role and authority provisions. However, the partnership may choose one person to act as its representative for federal purposes and another person to serve in that capacity at the state level.
What Are the Duties of the Partnership Representative?
The partnership representative has sole authority to act on behalf of the partnership in an audit or tax examination. The partnership’s direct and indirect partners are bound by the actions of the partnership representative.
The scope of the partnership representative’s authority includes, but is not limited to:
- entering into settlement agreements;
- making decisions on tax payments;
- agreeing to final partnership adjustment notices;
- requesting imputed underpayment modifications;
- agreeing to extend or waive modification periods;
- agreeing to adjustments and waiving final partnership adjustments;
- agreeing to extend statutory periods for making adjustments;
- declining to contest adjustments; and
- making push out elections.
The partnership representative is not required to consult or receive approval from the partners. The partnership representative can bind both current and former partners, who do not have the right to receive notice of or participate in the proceedings.
Who Is Eligible?
The partnership can designate any person, entity, or itself as the representative, so long as they have a substantial presence in the United States. If an entity is designated, an individual who has a substantial presence in the U.S. must also be named to act on the entity’s behalf.
What Constitutes Substantial Presence?
To have a substantial presence in the United States, the representative must:
- have a U.S. taxpayer identification number;
- have a U.S. street address and a telephone number with a U.S. area code; and
- make themselves available to meet in person with the IRS in the U.S.
How is a Partnership Representative Designated?
The partnership designates its representative each year with its tax filing. If no designation is in effect, the IRS selects the representative. Under the MTC model provisions, the state partnership representative is the same as the federal representative, unless the partnership designates another person in writing. Accordingly, reasonable qualifications of and procedures for designating a state level representative may be established by the state tax agency.
States enacting provisions similar to the MTC model rules addressing the state partnership representative include:
- Georgia allows a partnership to choose a person other than their federal partnership representative by designating such person in a statement attached to their return;
- New Mexico;
- Virginia; and
- West Virginia.
Can the Designation Be Changed?
Form 8979, Partnership Representative Revocation, Designation, and Resignation, is used to make changes to a federal partnership representative or designated individual. However, once the representative has been designated for the tax year, the partnership can only change it:
- in the context of an administrative proceeding; or
- if the partnership files an administrative adjustment request, which cannot be used solely to change its representative.
The partnership representative’s authority to act for and bind the partnership and its partners is extensive. Further, once designated, the circumstances under which a change may be made is limited. Consideration should be given in choosing the appropriate representative. Additionally, partnership agreements should be reviewed to ensure the appointment of the partnership representative has been addressed, as well as related provisions.