New For Partnerships in 2018 TCJA

The Partnership Representative

The Partnership Representative is the sole individual (or entity) with the ability to act on behalf of the partnership in relation to the IRS. The Partnership Representative has significant authority to bind both the partnership and the partners in administrative proceedings and judicial actions. Partners do not have the ability to appeal or challenge the decisions of the Partnership Representative, but are still generally required to report consistent with the positions and allocations determined by the partnership.
While the broad authority of the Partnership Representative cannot be limited by the partnership agreement from the IRS’s perspective, provisions should be put in place to outline decision-making procedures and to require the Partnership Representative to follow such decisions. The following is a brief list of topics to consider when drafting provisions addressing the Partnership Representative:

Selection: Because of the significant authority vested in the Partnership Representative, care should be taken in this appointment and the partnership should include provisions either naming the Partnership Representative or providing a clear mechanism for appointing the Partnership Representative, especially in the event the Partnership Representative is removed, resigns or becomes incapacitated. Unlike the TMP, the Partnership Representative is not required to be a partner in the partnership.

Limits on Decision-making Authority: The partnership may want to include procedures for pre-approving the decisions of the Partnership Representative made in connection with an audit and establish communication requirements between the Partnership Representative and the partnership’s management or partners. While any such limitations are contractual in nature and not binding on the IRS, such procedures can provide additional protections for the partners.

Standards of Care and Indemnification: Standards of care and indemnification of managers and partners are functions of state law. Currently, there is no specific statutory indemnification of a Partnership Representative. However, with significant authority comes a great deal of risk for the Partnership Representative. Appropriate standards of care and indemnification provisions should be included in the partnership agreement in order to afford the Partnership Representative a certain level of protection from claims made by disgruntled partners or former partners.

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