The Bipartisan Budget Act Audit Regime

Why It Matters

The BBA audit framework shifts compliance risk onto taxpayers, increasing audit costs and exposing them to conflicting federal and state obligations. Understanding these traps is essential for advisors to avoid costly penalties and timing missteps.

Key Takeaways

• AARs barred after IRS notice of administrative proceeding.
• Push‑out elections require extensive forms and electronic permissions.
• Georgia’s MTC statute forces 90‑day reporting of federal adjustments.
• IRS system glitches can delay partnership audit compliance.
• Whipsaw risk arises when estate and partnership audits conflict.

Pulse Analysis

The 2015 Bipartisan Budget Act reshaped partnership taxation by centralizing audits under a single, streamlined process. While the intent was to simplify administration, the prohibition on filing Administrative Adjustment Requests after a Notice of Administrative Proceeding creates a rigidity that can leave partnerships stranded. Taxpayers must navigate a narrow window to correct errors, and once the IRS initiates a BBA audit, the partnership’s ability to amend its return is effectively frozen, pushing the burden of resolution onto the taxpayer and often resulting in higher tax liabilities.

Compounding the challenge, the push‑out election mechanism—designed to allocate imputed underpayments to individual partners—requires a cascade of filings: Form 8988, Form 8985, and Form 8986, plus a suite of supporting documents. Each step demands specific electronic credentials, including an ID.me account, e‑services permissions, and a PBBA Transmitter Control Code. In practice, advisors encounter system glitches, delayed approvals, and a steep learning curve that makes last‑minute compliance nearly impossible. Early preparation, thorough documentation, and proactive engagement with the IRS help mitigate these operational hurdles.

State and local tax implications further complicate the landscape. Georgia’s adoption of the Multistate Tax Commission model illustrates how state statutes can reverse the federal push‑out default, requiring partnerships to report federal adjustments within 90 days of the final determination date and to file amended composite returns. Missed deadlines trigger penalties at both the state and federal levels, emphasizing the need for synchronized planning across jurisdictions. Tax professionals must track final determination dates, align push‑out election timelines, and stay abreast of evolving state statutes to safeguard clients from unexpected exposure.