“Give me six hours to chop down a tree and I will spend the first four sharpening the axe.”
― Abraham Lincoln
The Bipartisan Budget Act (BBA) was signed into law by President Barack Obama in 2015 and fundamentally changed the way partnerships are audited. Under the BBA, the IRS generally assesses and collects any understatement of tax (called an imputed underpayment) at the partnership level. The new rules were applicable to all entities starting on January 1, 2018, unless they are eligible to elect out. A significant uptick in BBA audits hasn’t, for the most part, occurred because of other demands on the IRS. However, a ramp up in BBA audits in 2021 is expected given IRS plans to increase audits on small businesses, usually operating as partnerships, by 50 percent. Preparation prior to any audit is a good idea, but it is imperative for partnerships navigating new audit rules under BBA. Here are some ways to sharpen your axe before the audit notice arrives.
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