As 2018 comes to a close, it is important to make sure that your partnership and LLC agreements reflect the new tax law that went into effect on January 1, 2018. For all tax years beginning on or after January 1, 2018, the existing audit regime for entities taxed as partnerships has been completely replaced.
How do you know if your documents are out of date? Look to see whether your agreements refer to a tax matters partner or a partnership representative. The tax matters partner concept has been completely replaced with a partnership representative, so if your agreements refer only to a tax matters partner, they are out of date.
What if my agreements are out of date, is there anything I can do? Yes! Tax law allows partnership and LLC agreements to be amended retroactively to January 1, 2018, as long as the amendment is executed before March 15, 2019. So you have a crucial window of time in which you can bring your agreements up to date.
This tax law change may seem unimportant, especially if you have never been audited. But updating your documents is crucial, as the partnership representative is the only person that the IRS will deal with now when auditing a partnership. The partnership representative has the sole authority to participate in the audit and bind the partnership when it comes to dealing with the IRS, so it will be important to get the selection of your partnership representative correctly. More importantly, you do not want to leave this important decision to the IRS.
So, if your ownership structure includes entities that file an IRS Form 1065 Partnership Tax Return, and many senior living structures do, you need to look at your organizational documents to see if they address these audit rule changes. If you do not see the term partnership representative anywhere, then you will likely need to update.