Is Your Operating Agreement BBA-Compliant?01 / 23 / 2019
IS YOUR OPERATING AGREEMENT BBA-COMPLIANT?
What does "BBA-Compliant" mean? For anyone interacting with LLCs, or other entities treated under the Federal Tax law as a partnership (i.e., more than one partner, member, owner), they will be surprised to learn that the concept of a "tax matters partner" (TMP) has come to an end under the 2015 Bipartisan Budget Act, effective January 1, 2018.
While the Government may be shut-down for now, when the day comes that the IRS wishes to pursue any "understatement" arising in an LLC, they will no longer have to pursue indirect partners using the arcane TEFRA audit rules and a TMP is no longer going to drive the bus on how to inform indirect partners down the chain.
This change in the manner in which partnership entities are to be audited at the Federal level mandates that a "partnership representative" be appointed who need not be a partner/owner/member. The audits may focus on prior years of a partnership entity in which there were different partners (reviewed year partners) when compared to the current year. How the partnership entity addresses these new rules and the elections that may be made, mandate careful drafting.
If you have any questions about the BBA, please contact Scott Tufts.