The Bipartisan Budget Act of 2015, the deal that gave the U.S. a little more breathing room on its debt obligations, also created sweeping changes to how the IRS approaches audits to large partnerships in order to make it easier for the service to apportion tax liability in the case of an adjustment.

While the IRS had been able to audit partnerships on the entity-level as a whole, versus having to audit individual partners, since the Tax Equity and Fiscal Responsibility Act (TEFRA) of 1982, such audits remained problematic for practical, versus statutory, reasons. While theoretically the IRS could audit the entire partnership, in practice there was often confusion over things like which entity in a tiered structure is actually generating the income or loss, or even what the overall business purpose of the partnership is. Another significant problem is that a large partnership audit couldn’t start without identifying a Tax Matters Partner, but it is often unclear just who that partner is, and the time taken to find them means the IRS has less time to do the actual audit. 

Even if the audit was successfully completed and an adjustment needed to be made, figuring out how to apportion the liability among the partners was often an exercise in frustration, as Forms 1065, Schedule K-1s and partners’ 1040s must be linked together in a process that remains largely manual and paper-driven. 

The 2015 law created a new set of streamlined rules. As under current law, the IRS will audit partnerships at the entity level. What's changed, though, is that any taxes due after the audit can now be assessed against the partnership as a whole, meaning that the IRS won't have to then pursue individual partners for the money. Instead that will be handled by a partnership representative, who is the only person who will receive notice of any administrative proceeding that has been initiated, notice of any proposed partnership adjustment, and notice of any final partnership adjustment, and further will have the sole authority to act on behalf of the partnership. 

A partnership is excepted, though, if it has fewer than 100 eligible partners. An "eligible partner" in this case means an individual, a C corporation, a foreign entity that would be treated as a C corporation if it were domestic, an S corporation, or an estate of a deceased partner. While come comments expressed a desire for the IRS to expand this definition, such as allowing every tiered partnership to be exempted, it felt such actions would undermine the benefits of the new law if it were to do so.