McDonald Hopkins: “Section 6223 of the new partnership and LLC audit rules (the “Audit Rules”), . . . provides that ‘the partnership representative . . . shall have the sole authority to act on behalf of the [LLC taxed as a] partnership.’ Some of the more troubling aspects of this section include:
- The partnership representative has complete authority to act on behalf of the partnership . . . when dealing with the IRS. . . . [N]othing can change the partnership representative’s authority as far as the IRS is concerned. Of course, a partnership or operating agreement can require that the partnership representative receive the consent of the partners before agreeing with the IRS on a matter . . . .
- This authority includes the ability to bind the partnership and the partners in audits and other proceedings, including settlement authority and decisions on procedural issues, such as whether to proceed to litigation.
- Significantly, there is no legal obligation under the IRS rules for the partnership representative to keep the other partners updated on the status of an audit or even to notify the partners of the audit.
- The partnership representative does not need to be a partner in the partnership, raising the issue of naming a partnership representative permanently in a partnership or operating agreement, only to have that partner leave the partnership.
- Finally, if the partnership does not appoint a partnership representative, the IRS has the authority to appoint one for the partnership.”