Partnership Audit Extensions Were Invalid Due to Invalid Signatures

(Parker Tax Publishing February 2025)

The Office of Chief Counsel advised that a partnership's elections on Form 872-M, Consent to Extend the Time to Make Partnership Adjustments, were invalid because the forms were signed by individuals who were not the designated individual of the partnership representative. The Chief Counsel's Office concluded that the period of limitations for the IRS to make proposed adjustments to the partnership's returns was three years under Code Sec. 6235(a)(1). CCA 202505027.

Background

A partnership filed Form 1065, U.S. Return of Partnership Income, for years 2018 and 2019. The partnership did not elect out of the partnership audit rules under the Bipartisan Budget Act of 2015 (BBA) (Pub. L. 114-74) for either year. On Schedule B of the 2018 Form 1065, the partnership identified a partnership representative (PR) and a designated individual (DI) for the PR. The taxpayer identification number for the designated PR corresponded to an entity. On Schedule B for the 2019 Form 1065, the partnership identified the PR as an entity and identified a DI.

In October of 2021, the chief financial officer (CFO) and treasurer of the partnership signed a Form 872-M, Consent to Extend the Time to Make Partnership Adjustments, for the partnership's 2018 tax year. The form purported to extend the Code Sec. 6235(a)(1) period of limitations to make partnership adjustments until September 13, 2023. In November of 2022, another individual signed a second Form 872-M for the 2018 and 2019 tax years. The form purported to extend the period of limitations to make partnership adjustments until September 15, 2024. In April of 2024, the partnership's CFO and treasurer signed a third Form 872-M for the 2018 and 2019 tax years. The form purported to extend the period of limitations to make partnership adjustments until December 31, 2024. In August of 2024, an individual signed a fourth Form 872-M purporting to extend the period of limitations to make partnership adjustments until April 30, 2026.

The BBA partnership audit rules apply to all partnership returns filed on Form 1065 unless the partnership makes a valid election out of BBA under Code Sec. 6221(b). Under Code Sec. 6223(a), a partnership's PR has the sole authority to act on behalf of the partnership. Reg. Sec. 301.6223-1(a) provides that a partnership must designate a PR for each tax year that it is subject to the BBA audit rules. A PR may be designated on Form 1065 or Form 8979, Partnership Representative Revocation, Designation, and Resignation. When a partnership designates an entity as its PR, the partnership is also required under Reg. Sec. 1.6223-1(b) to name a DI for the PR.

There may be only one PR and one DI for a partnership tax year at any time. The designation of a PR for a partnership tax year remains in effect until the PR resigns, the partnership revokes the designation, or the IRS determines that the designation is no longer in effect. Form 8979 is used to designate or revoke a PR or a DI, for the PR or DI to resign, or for the IRS to designate a PR/DI where no PR/DI is in effect. For BBA partnerships, the PR, or DI if the PR is an entity, has the sole authority to sign a Form 872-M.

Under Code Sec. 6235(a), the IRS generally has three years from the date a return is filed or its original due date, whichever comes later, to make a proposed adjustment to a partnership return. The Code Sec. 6235(a) date can be extended by agreement pursuant to Code Sec. 6235(b).

Analysis

The Office of Chief Counsel advised that all four of the Forms 872-M were invalid because they were all signed by an individual who was not the partnership's PR or DI and thus had no authority to consent to extend the period of limitations.

The partnership's 2018 Form 1065 was filed on September 13, 2019. The original due date was March 15, 2019. The Chief Counsel's Office advised that the filing date was the later of the two dates; therefore, three years were added to that date to arrive at the Code Sec. 6235(a)(1) date, which was September 13. 2022. According to the Chief Counsel's Office, this is the date by which the IRS was required to mail the Letter 5892, Notice of Proposed Partnership Adjustment (NOPPA). The Chief Counsel's Office observed that the NOPPA was not mailed due to the reliance on the Forms 872-M which purportedly extended the Code Sec. 6235(a)(1) period of limitations through April 30, 2026. The partnership's 2019 Form 1065 was filed on September 14, 2020. The original due date was March 15, 2020. Again, since the filing date was the later of the two dates, three years were added to that date to arrive at the Code Sec. 6235(a)(1) date, which was September 14, 2023. The NOPPA was not mailed by that date due to the reliance on the Forms 872-M.

The Chief Counsel's Office concluded that, since the Forms 872-M were invalid, the period of limitations for the partnership's 2018 tax year expired on September 13, 2022, and the period of limitations for the partnership's 2019 tax year expired on September 13, 2023.

For a discussion of the requirement for partnerships to designate a representative under the BBA, see Parker Tax ¶28,725. For a discussion of the statute of limitations making partnership adjustments, see Parker Tax ¶28,785.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

Parker Tax Pro Library - An Affordable Professional Tax Research Solution. www.parkertaxpublishing.com

We hope you find our professional tax research articles comprehensive and informative. Parker Tax Pro Library gives you unlimited online access all of our past Biweekly Tax Bulletins, 22 volumes of expert analysis, 250 Client Letters, Bob Jennings Practice Aids, time saving election statements and our comprehensive, fully updated primary source library.

Try Our Easy, Powerful Search Engine

A Professional Tax Research Solution that gives you instant access to 22 volumes of expert analysis and 185,000 authoritative source documents. But having access won’t help if you can’t quickly and easily find the materials that answer your questions. That’s where Parker’s search engine – and it’s uncanny knack for finding the right documents – comes into play

Things that take half a dozen steps in other products take two steps in ours. Search results come up instantly and browsing them is a cinch. So is linking from Parker’s analysis to practice aids and cited primary source documents. Parker’s powerful, user-friendly search engine ensures that you quickly find what you need every time you visit Our Tax Research Library.

Dear Tax Professional,

My name is James Levey, and a few years back I founded a company named Kleinrock Publishing. I started Kleinrock out of frustration with the prohibitively high prices and difficult search engines of BNA, CCH, and RIA tax research products ... kind of reminiscent of the situation practitioners face today.

Now that Kleinrock has disappeared into CCH, prices are soaring again and ease-of-use has fallen by the wayside. The needs of smaller firms and sole practitioners are simply not being met.

To address the problem, I’ve partnered with a group of highly talented tax writers to create Parker Tax Publishing ... a company dedicated to the idea that comprehensive, authoritative tax information service can be both easy-to-use and highly affordable.

Our product, the Parker Tax Pro Library, is breathtaking in its scope. Check out the contents listing to the left to get a sense of all the valuable material you'll have access to when you subscribe.

Or better yet, take a minute to sign yourself up for a free trial, so you can experience first-hand just how easy it is to get results with the Pro Library!

Sincerely,

James Levey

Parker Tax Pro Library - An Affordable Professional Tax Research Solution. www.parkertaxpublishing.com