If
a partnership had 100 or more partners in its preceding taxable year, it
can generally choose to be treated as an "Electing Large
Partnership." Effective for partnership tax years beginning after
12/31/97.
Simplified Flow-Through: An electing
large partnership can significantly reduce the number of items separately
reported to the partners. The partnership can elect to combine most items
of partnership income, deduction, credit, loss, and AMT adjustments and
preferences at the partnership level and pass the net amounts through to
the partners. Special rules apply for oil and gas partnership activities.
Simplified Audit Procedures: If a
large partnership elects to apply the simplified flow through reporting
rules, the partnership consolidated audit procedures under TEFRA do not
apply. Only the partnership is notified of an audit and only the
partnership has the right to appeal adjustments made by the IRS.
Partnership has 2 choices in treating any
adjustments made:
1) Adjustments are combined with similar
items on the current tax return and passed through to the partners.
2) Partnership pays tax on the adjustment
at the highest individual or corporate rate plus interest and penalties,
and no adjustment is passed through to the partners.
Information Returns: Partnerships
that make the election file Form 1065-B, U.S. Return of Income for
Electing Large Partnerships, to report partnership items. The partnership
is required to furnish Forms K-1 (Form 1065-B) to each partner showing
distributive share of income or loss and other separately stated items.
