New Jersey Business Tax Lawyers Explain TEFRA
March 13, 2012 By Thorn Law Group
TEFRA stands for the Tax Equity and Fiscal Responsibility Act of 1982; however, it has evolved into a much different use in the parlance of New Jersey tax lawyers. TEFRA is the common acronym used to describe the judicial, examination, and processing requirements that apply to most entities treated as partnerships for income tax purposes.
If you are uncertain if your partnership is a TEFRA partnership, contact a New Jersey business tax lawyer. today to determine if you qualify. TEFRA procedures are substantially different from non-TEFRA procedures and your NJ tax lawyer can explain the differences.
Before 1982, when investigating a partnership with an IRS audit, the IRS was required to locate and examine the income tax form of every partner, no matter where he or she was located. The IRS had to keep track of each partner’s statute of limitations, begin prosecution before any partner’s statute of limitations expired, and litigate each case separately. These rules were not only burdensome for the IRS, they were also difficult for partnerships; many partners were surprised to find themselves investigated.
TEFRA reformed these procedures. All examinations are now held at the partnership level and not at dozens of separate partner-level proceedings. Moreover, every partner now must report income regularly both through the partnership and individually to make criminal tax evasion and other crimes more evident. In general, partnerships do not pay income tax. Instead, the partnership files a joint form that specifies the earnings of each member of the partnership, and then partners file their own income forms.
In general, every partnership follows TEFRA rules unless they meet the “small partnership exception.” If a partnership has fewer than ten partners throughout the year, each of whom is a U.S. individual, a C corporation, or an estate of a deceased partner, it may qualify for the small partnership exception. However, they can elect to follow the TEFRA rules by attaching an election statement to the partnership tax return the first year they would like to be subject to these rules.
In addition, TEFRA rules permit the appointment of a “tax matters partner.” This partner is in charge of representing the partnership before the IRS and in federal civil tax litigation for one taxable year. The duties of the tax matters partner include representing the partnership in TEFRA proceedings, extending the statute of limitations for all partners, selecting the venue for litigation, applying for TEFRA refunds, settling partnership adjustments, receiving notices from the IRS, keeping the other partners informed, and providing information to the IRS about the partners.
TEFRA rules are complex and confusing. If you seek to understand these rules, call a NJ tax lawyer today who can explain TEFRA provisions and how they apply to your partnership.
ABOUT THE AUTHOR: Kevin E. Thorn
Thorn Law Group, which was founded by tax attorney Kevin E. Thorn, is an experienced law firm whose mission is to successfully represent you in sensitive tax controversies. Thorn Law Group assists clients all over the U.S. and internationally.
Copyright Thorn Law Group
More information about Thorn Law Group
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
Before 1982, when investigating a partnership with an IRS audit, the IRS was required to locate and examine the income tax form of every partner, no matter where he or she was located. The IRS had to keep track of each partner’s statute of limitations, begin prosecution before any partner’s statute of limitations expired, and litigate each case separately. These rules were not only burdensome for the IRS, they were also difficult for partnerships; many partners were surprised to find themselves investigated.
TEFRA reformed these procedures. All examinations are now held at the partnership level and not at dozens of separate partner-level proceedings. Moreover, every partner now must report income regularly both through the partnership and individually to make criminal tax evasion and other crimes more evident. In general, partnerships do not pay income tax. Instead, the partnership files a joint form that specifies the earnings of each member of the partnership, and then partners file their own income forms.
In general, every partnership follows TEFRA rules unless they meet the “small partnership exception.” If a partnership has fewer than ten partners throughout the year, each of whom is a U.S. individual, a C corporation, or an estate of a deceased partner, it may qualify for the small partnership exception. However, they can elect to follow the TEFRA rules by attaching an election statement to the partnership tax return the first year they would like to be subject to these rules.
In addition, TEFRA rules permit the appointment of a “tax matters partner.” This partner is in charge of representing the partnership before the IRS and in federal civil tax litigation for one taxable year. The duties of the tax matters partner include representing the partnership in TEFRA proceedings, extending the statute of limitations for all partners, selecting the venue for litigation, applying for TEFRA refunds, settling partnership adjustments, receiving notices from the IRS, keeping the other partners informed, and providing information to the IRS about the partners.
TEFRA rules are complex and confusing. If you seek to understand these rules, call a NJ tax lawyer today who can explain TEFRA provisions and how they apply to your partnership.
ABOUT THE AUTHOR: Kevin E. Thorn
Thorn Law Group, which was founded by tax attorney Kevin E. Thorn, is an experienced law firm whose mission is to successfully represent you in sensitive tax controversies. Thorn Law Group assists clients all over the U.S. and internationally.
Copyright Thorn Law Group
More information about Thorn Law Group
View all articles published by Thorn Law Group
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
