New Form 7036, recently released by the IRS, would allow law firms to elect to apply the new partnership audit regime enacted by the 2015 Bipartisan Budget Act (BBA) for partnership tax years beginning after November 2, 2015 and before January 1, 2018 (an Eligible Tax Year). A newly released memorandum (the IRS Memo) outlines the IRS's internal procedures related to the election. For details on the form and IRS Memo, see Tax Alert 2017-1116.

The release of this form and accompanying memo should prompt law firms to consider whether they would benefit from electing into the BBA partnership regime if audited for an Eligible Tax Year. Law firms should also begin thinking through the issues that will accompany the switch to the new regime. Those issues include:

— Revising partnerships agreements to reflect the new rules
— Appointing a partnership representative (PR)
— Determining how partners will direct and control the PR for different types of decisions
— Determining how partners will make elections under the audit rules
— Deciding whether a partnership should to elect to "push out" a tax deficiency to its partners rather than keep the deficiency as a partnership liability

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