Partnership Representative for Income Tax Return: What Has Changed

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If you are a member of a partnership or limited liability company and you fill out Form 1065 (Partnership Income Tax Return) annually, you must designate an individual or company to answer for the company in the United States. The main condition is that this representative has a substantial presence in the country.

The partnership representative (PR) is appointed by the company as a sort of “centralizer” of communications with the Internal Revenue Service (IRS) in case of an audit. If the company chooses a legal entity as a PR (including cases in which the company itself presents as a PR), it is also necessary to indicate an individual as responsible — the designated individual (DI). The selection of PR and DI must be redone annually, being valid only for the fiscal year.

It is not mandatory that the PR is a partner of the partnership or LLC. However, it is mandatory to prove substantial presence in the United States by submitting a US taxpayer identification number, address, and telephone number. In addition, the representative must be physically available for consultation with the IRS in the short term.

The company’s PR may be superseded at any time, but the new rules provide that the parties are not required to notify the IRS of the change in representation until the company is to undergo an audit or unless the company submits an administrative adjustment request (AAR), which, in summary, is a corrected IR statement. It is worth noting that it is not allowed to request the administrative adjustment exclusively to revoke the selection of the representative.

We remind you of the importance of talking to your CPA before making the decision about choosing the PR, after all, the representative can act on behalf of the company without consulting the partners during an audit process.