IRS Form 7036 – In the complex world of partnership taxation, staying compliant with IRS regulations is crucial for businesses. One lesser-known but important form is IRS Form 7036, which allows eligible partnerships to make a specific election under the Bipartisan Budget Act of 2015 (BBA). This election can significantly impact how partnership audits are handled, especially for tax years predating the full implementation of new audit rules. In this comprehensive guide, we’ll explore what Form 7036 is, its purpose, eligibility requirements, filing process, and implications for partnerships. Whether you’re a tax professional, business owner, or accountant researching “IRS Form 7036 election,” this article provides up-to-date insights based on official IRS sources.
What Is the Bipartisan Budget Act of 2015?
The Bipartisan Budget Act of 2015, enacted on November 2, 2015, introduced sweeping changes to how the IRS audits partnerships. Prior to the BBA, partnerships were subject to the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) procedures or electing large partnership rules. The BBA repealed these and established a centralized partnership audit regime, where adjustments and underpayments are generally assessed at the partnership level rather than individually against partners.
This new regime became effective for tax years beginning after December 31, 2017. However, Section 1101(g)(4) of the BBA allows partnerships to “early elect” into these rules for returns filed for tax years starting after November 2, 2015, and before January 1, 2018. This provision gives partnerships flexibility during transitional periods, particularly when facing an IRS examination.
Purpose of IRS Form 7036
IRS Form 7036, titled “Election under Section 1101(g)(4) of the Bipartisan Budget Act of 2015,” is the official document partnerships use to make this early election. Its primary purpose is to opt into the centralized audit regime when the IRS notifies a partnership of an upcoming examination. By filing this form, the partnership agrees to have the BBA’s audit procedures apply to the specified tax return, which can streamline the process and potentially shift liability handling.
Key benefits of the election include:
- Centralized assessment of imputed underpayments at the partnership level.
- Designation of a partnership representative to handle IRS communications.
- Avoidance of older TEFRA rules, which could involve more complex partner-level adjustments.
However, once made, the election is binding and can only be revoked with IRS consent.
Who Should File Form 7036?
Form 7036 is relevant for partnerships that:
- Have filed returns for tax years beginning after November 2, 2015, and before January 1, 2018.
- Receive a notice of selection for examination from the IRS (e.g., Letter 2205-D or similar).
- Wish to apply the BBA’s centralized audit rules instead of legacy procedures.
This form is typically filed by the Tax Matters Partner (TMP) under TEFRA or an authorized signer of the partnership’s return. It’s not applicable for partnerships already under the full BBA regime (post-2017 tax years) or those that have filed administrative adjustment requests (AARs) or amended returns prior to the election.
If your partnership is undergoing an audit and meets these criteria, consulting a tax advisor is recommended to evaluate if the election aligns with your financial situation.
Eligibility Requirements for the Election
Not every partnership can make this election. According to IRS guidelines, eligibility includes:
- The partnership must have been notified of an examination via an official IRS letter.
- It cannot be insolvent or anticipate insolvency before resolving any audit adjustments.
- No voluntary or involuntary bankruptcy petition under Title 11 should be pending or anticipated.
- The partnership must have sufficient assets to cover any potential imputed underpayment determined during the exam.
- No prior AAR or amended return has been filed or deemed filed for the tax year in question.
These requirements ensure the partnership can handle potential liabilities under the centralized regime.
How to File IRS Form 7036?
Filing Form 7036 is straightforward but requires attention to detail. Here’s a step-by-step guide:
- Gather Information: Collect the partnership’s name, Taxpayer Identification Number (TIN), tax period dates, and details of the partnership representative (name, TIN, address, phone).
- Complete the Form:
- Part I: Elect the application of the BBA regime and provide partnership details.
- Part II: Designate the partnership representative as per IRC Section 6223.
- Part III: Sign under penalties of perjury, confirming authorization and accuracy.
- Submit the Form: Provide the completed form to the IRS contact person listed in the examination notice. While Form 7036 is recommended, partnerships can also submit a statement meeting the requirements outlined in Temporary Regulations §301.9100-22T.
The form is available for download from the IRS website: https://www.irs.gov/pub/irs-pdf/f7036.pdf.
Deadlines and Timing
The election must be made within 30 days of the date on the IRS notice of selection for examination. Late elections are not accepted without IRS approval, so prompt action is essential. Rules for timing and manner are detailed in Treasury Decision 9780, published on August 5, 2016.
Implications of Making the Election
Opting into the BBA via Form 7036 shifts the audit focus to the partnership entity, potentially simplifying proceedings but also placing the underpayment burden on the partnership. This can affect cash flow, partner distributions, and future tax planning. Partnerships with complex structures or international elements should weigh the pros and cons carefully.
Additionally, for audits under the BBA, the partnership representative has significant authority, so choosing the right individual is key. If circumstances change, partnerships may need to use Form 8979 to revoke or change the representative.
Conclusion
IRS Form 7036 serves as a bridge for partnerships navigating the transition to the BBA’s centralized audit rules. By understanding its purpose, eligibility, and filing requirements, you can make informed decisions during an IRS examination. Always consult with a qualified tax professional for personalized advice, as tax laws can evolve. For the latest updates, visit the IRS website or review relevant Internal Revenue Manuals (IRMs).
If you’re dealing with a partnership audit or need to file Form 7036, download it directly from the provided link and act within the 30-day window to ensure compliance. Staying proactive with IRS elections like this can help mitigate risks and streamline your tax obligations.