Article written by:
Nicole Dulle, CPA
Senior Manager, Tax & Business Advisory Services

Jack Grote, CPA
Senior, Tax & Business Advisory Services


As part of the 2015 Bipartisan Budget and Reconciliation Act, the centralized partnership audit regime (“CPAR”) was established to replace the formerly unified audit procedures, starting with tax years that begin after December 31, 2017. Since enactment, the Treasury Department has issued several regulations to further clarify the new process, with the most recent being issued on December 21, 2018.

Under the new regime, partnerships are required to designate a Partnership Representative (“PR”), which replaces the previous tax matters partner designation.


The PR can be a partner of the partnership or an outside representative. To be qualified to act as a PR, you must have a substantial presence in the United States. Substantial presence for this purpose is defined as being available to meet with the IRS in the U.S. at a reasonable time and place, having a U.S. taxpayer ID, and having a U.S. street address and telephone number with a U.S. area code.

The IRS has confirmed that a PR may be an entity, including a disregarded entity or the partnership itself. However, if an entity is named as PR, a Designated Individual (“DI”) must also be named who has authority to act on behalf of the PR. Both the PR and DI must satisfy the substantial presence requirements.


The designation of a PR and/or DI shall be made on the partnership’s Form 1065 each year. The PR designation will be in effect unless/until there is a valid resignation, revocation or the IRS determines that the designation is not in effect (e.g.: if the PR no longer meets the eligibility requirements). There are very limited opportunities to change the designation once made, so it is important to exercise care when appointing the PR and/or DI.

Note – if the partnership does not follow the rules and make a valid PR/DI designation, the IRS may appoint a PR of its own choosing at the time an audit commences.


The PR has the sole authority to act on behalf of the partnership in all matters involving examinations of the partnership’s return, the conduct of administrative practice before the IRS (including protest to the Appeals Office and requests for Private Letter Rulings), and litigation in court of disputed tax adjustments.

The PR has the exclusive authority to bind all partners with respect to settlements with the IRS, decisions to challenge adjustments, making of partnership elections and payment of partnership liabilities.

A PR or DI is able to execute a Power of Attorney to authorize a representative (e.g.: your GBQ tax professionals) to act on its behalf in any dealings with the IRS.


The power granted to the PR is significantly more than was granted to the tax matters partner. As such, considerations should be given to the following:

  • Partner vs. non-partner:
    • Cost: a partner serving in this role could potentially lower the cost to the partnership, as a partner would be more familiar with the partnership.
    • Partiality: a non-partner does not have a vested interest in the outcome (e.g.: they would not negotiate an outcome more favorable to them than the rest of the partners).
    • If using a non-partner, consider a stand-alone agreement outside of the partnership agreement, as the non-partner would not be included in signing off on any partnership agreement amendments.
  • Some partnership agreement/amendment drafting considerations:
    • Duties of the PR/DI: are they required to notify all partners and at what point (e.g.: as soon as an audit commences or as they are closing it out?). Are they required to get agreement from all partners when contesting or conceding issues with the IRS or do they have unilateral control?
    • Push-out election: should IRS adjustments be pushed out to the partners vs. paid at the partnership level? When is this decided – in advance, or after the audit is under way?
    • Capital call: how will any adjustments assessed against the partnership be handled? Will it be the responsibility of the current partners, or will provisions to the partnership agreement be added that compel former partners to contribute if they were a partner in the year under audit?
    • Compensation: will the PR/DI be compensated for any time spent acting in the PR/DI capacity?
    • Indemnification: will the PR/DI be indemnified? If not, does this limit the individuals willing to serve in this capacity for the partnership?

* Please note, if the partnership is determined to be eligible, and has chosen to elect out of the CPAR, no PR designation is required to be made. Please check with your GBQ tax professional to see if you’re eligible to opt out.

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