The New Partnership Audit Rules

For over 30 years, partnerships have been subject to unified audit rules that permit the IRS to examine a partnership’s (including an LLC’s) tax return and make adjustments at the partnership level that affect all the partnership’s members. [1]  To comply with the existing rules, LLC operating agreements generally provide for the appointment of a tax matters partner and grant that tax matters partner the right to interface with the IRS, the obligation to comply with the requirement to notify the members of the LLC of the commencement of the IRS audit and the terms of any settlement or other disposition.

Effective January 1, 2018, all new and existing partnerships will be subject to new partnership audit rules.  The representative of the partnership will be known as the partner representative, dropping the familiar term “tax matters partner”.  The applicable statute of limitations on auditing the partnership and making adjustments that will affect all the partners will be determined at the partnership level and will be determined, or extended, at the entity level.[2]  The partnership representative may unilaterally extend the statute of limitations with the IRS on behalf of the partnership.[3]  A partnership with 100 or fewer partners that in general are US individuals or C corporations may elect out of the unified partnership audit rules.[4]  That is a significant increase in the size of a partnership eligible to elect out from the 10 or fewer individual partner limit on electing out of the unified partnership audit rules under pre-2018 law[5].  A partnership with pass-through entities as constituent partners may still qualify to elect out of the new rules if the pass-through entity partner discloses the identities of its members so that the master partnership can determine and certify that it has 100 or fewer direct and indirect partners who are US individuals (or their estates) or C corporations or foreign entities that would be treated as C corporations if they were US entities.[6]

All of the partners will be bound by the terms of any settlement, final audit report or court decision affecting the partnership.[7]  In a departure from the prior approach, the income tax deficiency will be computed at the partnership level and assessed against the partnership computed applying the highest individual and corporate tax rate for each partner[8].  This is in contrast to the current rule under which the determination of an adjustment is made at the partnership level but the partners are liable for computing the effect of the adjustment on their own returns.[9]  The partnership may opt out of liability for the partners’ taxes with the result that the tax burden will be passed through to the partners and computed at the partner level.[10]  The election to opt out of the unified partnership audit rules must be made when the partnership return is filed in most cases.[11]

The partner representative of the partnership will have the standard 90 days in which to file a petition for the US Tax Court to review the IRS’s proposed action.[12]  The partner representative, unlike a tax matters partner, does not have to be a partner or LLC member.[13]  That new rule may add some flexibility for the sponsor of a syndicated program.  Unlike the current rules, there will not be an opportunity for partners to file a petition for a redetermination of a final partnership administrative adjustment.[14]  Inconsistent treatment by a partner or member requires notification by the partner reporting inconsistent treatment, similar to current law.[15]  The new law has special rules on the timing of the assessment that permit the assessment and collection of a partnership adjustment in the year in which the adjustment becomes and non-contestable.[16]  It will be up to the partnership, if at all, to cause the economic cost of the collection of the adjustment to fall on the partners in the partnership for the year audited rather than for the year assessed and collected. By contrast, under existing law, a final partnership administrative adjustment, whenever assessed, affects the returns of the partners for the year or years audited, not the year collected—the collection occurs at the partner level based on the pass-through of the adjustment on the partnership’s tax return for the year audited.

For example, if the IRS audits a partnership’s return for 2015 and the examination is completed in 2018, any adjustment would be reflected in the tax liability of the partners for 2015.  Under the new law, when the partnership adjustment is final, the IRS will collect the deficiency from the partnership.  An audit of the partnership’s 2018 return might be completed in 2021 and collected at that time, but in the interim between 2018 and 2021 several placements might have added partners who were not investors in 2018 but who would have their share of available cash reduced in 2021.

As a practical matter, LLC operating agreements should reflect these new rules, appoint a partnership representative, describe the partnership representative’s authority to hire professionals, interact with the IRS, inform the partners of any developments and determine whether to elect out of the unified audit rules if there are fewer than 100 direct or indirect partners, and determine what events the partnership representative should be required to inform the partners pursuant to the terms of the operating agreement.  Existing LLC operating agreements for LLCs with more than 100 members, with pass-through entity members that cannot or will not reveal their constituent members’ identities or with foreign members should be analyzed to determine if the operating agreement authorizes the manager to conform the authority of the tax matters partner to these new rules when they become effective.

Michael Shaff joined Stubbs Alderton & Markiles, LLP in 2011 as Of Counsel. He is chairperson of the Tax Practice Group. Michael specializes in all aspects of federal income taxation. Mr. Shaff has served as a trial attorney with the office of the Chief Counsel of the Internal Revenue Service for three years. Mr. Shaff is certified by the Board of Legal Specialization of the State Bar of California as a specialist in tax law. Mr. Shaff is a past chair of the Tax Section of the Orange County Bar Association.  He is co-author of the “Real Estate Investment Trusts Handbook” published annually by West Group.

For more information about the Tax Practice Group, contact Chair, Michael E. Shaff at mshaff@stubbsalderton.com
_____________________________________________________

[1]   Internal Revenue Code (IRC) §6221 et seq. all as in effect after December 31, 2017.
[2]  IRC §6232(d)(2).
[3]   IRC §6232(d)(2).
[4]   IRC §6221(b)(1).
[5]   Old Section 6231.
[6]   IRC §6221(b)(2).
[7]   IRC §6223.
[8]   IRC §6221(a).  The statute authorizes regulations for adjusting the tax rate to be used when the highest rate is not appropriate.
[9]   IRC §6225(b).
[10]   IRC §6225(a).
[11]   IRC §6227(c).
[12]   IRC §6235.
[13]   IRC §6223(a) (“Each partnership shall designate*** a partner (or other person) …”)
[14]   IRC §6223(b).
[15]   IRC §6222(c).
[16]   IRC §6232.

 

FacebookTwitterGoogle+LinkedInEmail

Stubbs Alderton & Markiles, LLP Names New Partner and Senior Counsel

Los Angeles, CA – Stubbs Alderton & Markiles, LLP one of Southern California’s top business law firms, has announced the promotion of two attorneys within its ranks.

Sean Greaney has been promoted to Partner, effective January 1, 2017.  Sean’s practice focuses on corporate transactions, mergers and acquisitions, private equity transactions, and general corporate matters for both public and private clients, focusing on middle-market, emerging growth and development stage companies.  In addition, Sean counsels companies in connection with company formation process, SEC reporting requirements and registrations, federal and state securities laws and compliance, corporate governance issues, joint ventures, employee incentive plans and executive employment agreements.

Caroline Cherkassky has been promoted to Senior Counsel, effective January 1, 2017.  Caroline’s practice focuses on advising emerging growth, development stage, and middle market companies on a variety of matters, including venture capital and other financings, employee compensation, securities laws compliance, technology transactions, corporate governance, and other general corporate matters. She also advises the funds and other investors that invest in these types of companies.

Managing Partner Scott Alderton stated, “It is particularly gratifying to us when we promote from within.  Both Sean and Caroline are very talented lawyers who have consistently demonstrated technical excellence and great client service.  We are proud to welcome Sean into our Partnership and to recognize Caroline’s accomplishments with her promotion to Senior Counsel.”

For more information about Stubbs Alderton & Markiles, visit www.stubbsalderton.com or email info@stubbsalderton.com.

FacebookTwitterGoogle+LinkedInEmail

Scott Alderton Featured in 2016 Reflections Article by SoCalTech.com

scottAll this holiday season, SoCal Tech has been sharing the reflections on 2016 from the Southern California’s technology ecosystem. Here, they have the thoughts of Scott Alderton of Stubbs Alderton and Markiles, LLP.  SAM is a longtime sponsor of Socaltech.com, and represents a wide range of clients, including a significant number of Southern California’s most visible startups.

To read the full article visit here.

Scott Alderton is a founding partner of the Firm, Managing Partner, and a member of the Firm’s Executive Committee.  Scott is co-chair of the Firm’s Venture Capital and Emerging Growth Practice Group and chair’s the Firm’s Interactive Entertainment and Video Games Group. Scott advises both public and private clients across a number of industries, including technology, manufacturing and distribution of goods in commerce, finance, the Internet, interactive video games, and new media industries.

To learn more about Stubbs Alderton & Markiles, LLP contact Scott Alderton at salderton@stubbsalderton.com

 

FacebookTwitterGoogle+LinkedInEmail

Two of Stubbs Alderton & Markiles, LLP Attorneys Named to 2017 Best Lawyers® in America List

logo-best-lawyersDecember 2016 — Stubbs Alderton & Markiles, LLP is pleased to announce that two lawyers have been named to the 2017 Edition of Best Lawyers®, the oldest and most respected peer review publication in the legal profession.

Best Lawyers
 has published their list for over three decades, earning the respect of the profession, the media, and the public as the most reliable, unbiased source of legal referrals. Its first international list was published in 2006 and since then has grown to provide lists in over 70 countries.

Best Lawyers is the most effective tool in identifying critical legal expertise,” said CEO Steven Naifeh. “Inclusion on this list shows that an attorney is respected by his or her peers for professional success.”

Lawyers on the Best Lawyers in America list are divided by geographic region and practice areas. They are reviewed by their peers on the basis of professional expertise, and undergo an authentication process to make sure they are in current practice and in good standing.

Stubbs Alderton & Markiles, LLP would like to congratulate the following attorneys named to the 2017 Best Lawyers in America list:

  • Scott Alderton- Venture Capital Law
  • Michael A. Sherman- Commercial Litigation

scottScott Alderton is a founding partner of the Firm, Managing Partner, and a member of the Firm’s Executive Committee.  Scott is co-chair of the Firm’s Venture Capital and Emerging Growth Practice Group and chair’s the Firm’s Interactive Entertainment and Video Games Group. Scott advises both public and private clients across a number of industries, including technology, manufacturing and distribution of goods in commerce, finance, the Internet, interactive video games, and new media industries.

Michael Sherman is an accomplished trial lawyer in high-stakes, “bet-the-company” litigation, michael-shermanand has represented both large and early-stage companies as well as entrepreneurs in all facets of business and complex commercial litigation. He has evenly split his litigation practice on both the plaintiff and defense side of cases, has first-chaired numerous trials in complex matters in industries as varied as energy, securities, healthcare, environmental, consumer products, technology, project development/finance, advertising, real estate and apparel, and is highly skilled in class actions and unfair competition law.

The official Best Lawyers 2017 publication can be read in its entirety here.

For more information on our Venture Capital and Emerging Growth Practice, contact Scott Alderton at salderton@stubbsalderton.com.

For more information on our Business Litigation Practice, contact Michael A. Sherman at msherman@stubbsalderton.com.

FacebookTwitterGoogle+LinkedInEmail

Stubbs Alderton & Markiles, LLP ranked in 2017 “Best Law Firms” for Commercial Litigation

SAM-High-Res-Logo-1December 2016 — U.S. News & World Report and Best Lawyers, for the sixth consecutive year, announce the “Best Law Firms” rankings.

Stubbs Alderton & Markiles, LLP has been ranked in the 2017 U.S. News – Best Lawyers® “Best Law Firms” list and regionally in 1 practice areas.

Firms included in the 2017 “Best Law Firms” list are recognized for professional excellence with persistently impressive ratings from clients and peers. Achieving a tiered ranking signals a unique combination of quality law practice and breadth of legal expertise.

The 2017 Edition of “Best Law Firms” includes rankings in 74 national practice areas and 122 metropolitan-based practice areas. One “Law Firm of the Year” is named in each of the 74 nationally ranked practice areas.

Ranked firms, presented in tiers, are listed on a national and/or metropolitan scale. Receiving a tier designation reflects the high level of respect a firm has earned among other leading lawyers and clients in the same communities and the same practice areas for their abilities, their professionalism and their integrity.

Stubbs Alderton & Markiles, LLP received the following rankings in the 2016 U.S. News – Best Lawyers “Best Law Firms”:

  • Regional Tier 2
    • Los Angeles
      • Commercial Litigation

The official Best Lawyers 2017 publication can be read in its entirety here.

For more information about Stubbs Alderton & Markiles, LLP contact the firm at info@stubbsalderton.com.

FacebookTwitterGoogle+LinkedInEmail

SAM Preccelerator Program Presents: “How to Network for Capital” with Len Lanzi

Join Stubbs Alderton & Markiles, LLP
for this exclusive event!

 

 
 
 
“How to Network for Capital”
 

This session will focus on techniques and ways to network in the VC and Angel Community.  We will interact and share best practices on business development and promoting your start-up. 

 Thursday January 26th, 2017
5:30pm-8:00pm
 
**Networking and Startup Demos!**

SAM Preccelerator Program participants will have demo tables where they will showcase their companies. Check them out!
 register-200x200
 
  

Featuring

Len Lanzi, Executive Director,
LA Venture Association, (LAVA)
 

Len Lanzi is Executive Director of LAVA, and has over 20 years of non-profit organization management and fund development experience. In his role, he works with the LAVA board of directors to direct the strategic plan and organize educational and informational programs about the venture business environment in the greater Los Angeles region.

 
Sponsored by

   Stubbs Alderton & Markiles, LLP
1453 3rd Street Promenade, Suite 300
Santa Monica, CA 90401

 
Parking
4th Street/Broadway ramp or in the Santa Monica Place Mall

 

FacebookTwitterGoogle+LinkedInEmail

Napkin Finance Founder Tina Hay Featured on Equities.com®

napkin-finance-how-to-start-a-startup

Congratulations to SAM Preccelerator® Program’s company Napkin Finance and its founder Tina Hay for having an article featured on Equities.com this week. The article written by Tina Hay, entitled “A 7-Point Financial Checklist to Starting Your Own Business”  creates a list  to help guide those new to entrepreneurship. Napkin Finance is a multimedia company that simplifies financial matters and uses napkins to teach users everything they need to know about money in 30 seconds or less.

To view the full article on Equities.com click here.

For more about the Preccelerator® Program, contact Heidi Hubbeling, Director at
(310) 746-9803 or hhubbeling@stubbsalderton.com

FacebookTwitterGoogle+LinkedInEmail

SAM Client Hyperator VR Launches First Games on Steam

hypelogoSAM Client Hyperator VR Innovation Labs, a Santa Monica Virtual Reality company, announces the launch of their first VR games on Steam.  Hyperator’s first VR game is Star Kingdom: The Elements. Players learn how to control and wield elemental energy and magic based on their astrological alignment the day they were born.  Players must keep their planets illuminated and protected from the dark fog.

Their second launch is timely for this holiday season.  Holiday Simulator – Wacky Sleigh Ride tests your skills to see if you have what it takes to deliver all the presents before the sun comes up.  Choose between tossing presents or lumps of coal in this comedic journey in the north pole.  It was launched on the Steam network for the HTC Vive and the Oculus Rift.  The game will be released on the Oculus store, just in time for the holiday season.

You can find all Hyperator games on Steam here.

Behind every great startup is a great team.  SAM Preccelerator graduates, Charlie Trinh and Jude Belanger, the founders of Hyperator VR Innovation Lab, have been recognized by the CA state senator Ben Allen for their contribution to the enhancement of the LA tech community.  Every second Saturday of each month, they host a Premium Virtual Reality event at Expert Dojo in Santa Monica where users can test Hyperator’s VR games, and those of other developers.  Also, they have a Virtual Reality Apprenticeship Program that lowers the barrier to entry for new virtual reality programmers.  The Premium Virtual Reality events and Apprenticeship Program can be found on Eventbrite.  For more information about Hyperator VR, visit www.hyperator.com

FacebookTwitterGoogle+LinkedInEmail

SAM Client Milk and Eggs Closes $2.5M Financing Round

 

milk-and-eggs

Stubbs Alderton & Markiles, LLP announced that it represented client Milk and Eggs in its $2.5M financing round led by Morningside Venture Investments.

Milk and Eggs is a farm-fresh grocery delivery service. Their goal is to connect customers to great farmers. Customers sign up for subscriptions of milk, eggs, dairy, meats, vegetables, and fruit on a weekly or bi-weekly basis, with free membership and delivery and the ability to change orders at any time. All vegetables, fruits, dairy, eggs, and meats will be the freshest available as they are locally acquired. And, with an environmentally friendly aggregation and delivery system, it’s a win for their customers and the environment.

SAM Attorneys that represented Milk and Eggs were Joe Stubbs and Nick Feldman.

For more information about our Venture Capital & Emerging Growth practice, contact Joe Stubbs at jstubbs@stubbsalderton.com.

 

FacebookTwitterGoogle+LinkedInEmail

Preccelerator Program Company StyleMD Launches in iOS App Store!

stylemd-backgroundSAM Preccelerator Program company StyleMD announced that it has launched in the iOS App Store.  StyleMD is the smartest way to find a fashion stylist that will help you look and feel more confident on any budget. They curate talented stylists from across the country that help you save time and money to achieve your style goals. Whether you’re looking for a simple consultation, an online shopper, or closet assessment they’ve got you covered.

Sign up for free and they’ll show you stylists that will work with you right from your phone. StyleMD is not affiliated with a specific brand or retailer so there are no sales stylists or subscription models requiring you to buy and return stuff you don’t need – just great fashion stylists that work with you to get amazing results.

Schedule an intro session over FaceTime for just $5 to get started and find your perfect style(ist) today.  To download StyleMD, click here.

For more information about the Precclerator Program, contact, contact Heidi Hubbeling at (310) 746-9803 or hhubbeling@stubbsalderton.com.

FacebookTwitterGoogle+LinkedInEmail