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IRS Audit Process for International Partnerships

News, Offshore Account Update

Posted in on June 16, 2023

The Internal Revenue Service (IRS) regularly audits international partnerships for federal tax compliance. But, while these audits may be routine procedures for the IRS, they present substantial risks for the partnerships that are targeted. Tax audits can lead to substantial liability, and targeted partnerships need to execute an informed and strategic defense with the help of experienced tax counsel.

Steps in the IRS' Audit Process for International Partnerships

One of the first steps toward building an effective defense strategy is understanding what to expect during the tax audit process. There are several steps in an international partnership tax audit under the IRS' BBA Centralized Partnership Audit Regime, each of which presents its own unique set of considerations, risks and opportunities:

  • Issuance of a Notice of Selection for Examination (Letter 2205-D)
  • Issuance of a Notice of Administrative Proceeding (Letters 5893 and 5893-A)
  • Issuance of a Summary Report
  • Issuance of a 30-Day Letter Package
  • Appealing Issues in the Summary Report to the IRS' Independent Office of Appeals
  • Issuance of a Notice of Proposed Partnership Adjustments (NOPPA)
  • Requesting a Modification of Imputed Underpayment
  • Appealing a Denial of a Request for Modification
  • Issuance of a Notice of Final Partnership Adjustments
  • Challenging the outcome of the audit in federal court

For more information about each of these steps, you can read the IRS' overview of the BBA Partnership Audit Process.

Defending Against an IRS International Partnership Tax Audit

When facing IRS audits, partners in international partnerships should be prepared every step of the way. Upon receiving a Notice of Selection for Examination, they should promptly engage counsel to conduct an internal tax compliance assessment and schedule an initial examination appointment with the IRS.

Based on the outcome of the internal assessment, they should then work with the partnership’s counsel to develop an audit defense strategy that takes into account the realities of the circumstances at hand. If the partnership is in full compliance, then affirmatively demonstrating compliance could bring the audit to a swift end. Conversely, if the partnership is not in full compliance, then addressing past mistakes as effectively as possible will be critical for avoiding unnecessary liability and the need to pursue multiple rounds of appeals.

Ultimately, achieving a favorable outcome requires a proactive approach. If partners in an international partnership take a wait-and-see approach to the audit process, they will miss opportunities to protect the partnership (and potentially themselves). With a clear understanding of the process and the risks involved, partners can make informed decisions with the partnership’s best interest (and their own best interests) in mind.

Contact International Partnership Tax Lawyer Kevin E. Thorn in Virginia

If the IRS is auditing your international partnership in Virginia, we encourage you to contact us for more information. We have significant experience representing international partnerships in IRS audits and other high-stakes federal tax matters. To schedule an appointment with lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, please call 703-752-3752 or contact us confidentially online today.

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