Introduction to IRC Section 6226
The IRC Section 6226 push-out election is a provision under the Internal Revenue Code that allows partnerships to push out adjustments to their partners in the event of an audit. This election can provide significant benefits to partnerships and their partners by allowing them to avoid entity-level tax and instead report adjustments at the partner level.
By making the push-out election, partnerships can avoid the imposition of entity-level tax and related penalties and interest, which can be substantial. Instead, the adjustments are pushed out to the partners, who report the adjustments on their individual tax returns.
Benefits of the Push-Out Election
One of the primary benefits of the push-out election is that it allows partnerships to avoid entity-level tax, which can be as high as 37%. By pushing out adjustments to the partners, partnerships can avoid this tax and instead allow the partners to report the adjustments on their individual tax returns, where the tax rate may be lower.
Additionally, the push-out election can provide partners with greater flexibility in reporting adjustments, as they can report the adjustments in the year they are made, rather than waiting for the partnership to report the adjustments.
Eligibility for the Push-Out Election
To be eligible to make the push-out election, a partnership must meet certain requirements, including being a partnership that is subject to the centralized partnership audit regime. Additionally, the partnership must have made an election to be subject to the centralized partnership audit regime and must have provided notice to its partners of the election.
Partnerships that are eligible to make the push-out election must also provide certain information to their partners, including a statement of the adjustments made and the amount of tax, penalties, and interest due as a result of the adjustments.
Procedure for Making the Push-Out Election
To make the push-out election, a partnership must provide notice to its partners within 45 days of the date the partnership receives a notice of a proposed adjustment from the IRS. The notice must include certain information, including a statement of the adjustments made and the amount of tax, penalties, and interest due as a result of the adjustments.
Partnerships that make the push-out election must also provide their partners with a statement that includes the partner's share of the adjustments and the amount of tax, penalties, and interest due as a result of the adjustments.
Conclusion
In conclusion, the IRC Section 6226 push-out election can provide significant benefits to partnerships and their partners by allowing them to avoid entity-level tax and instead report adjustments at the partner level. To be eligible to make the push-out election, a partnership must meet certain requirements and must provide certain information to its partners.
Partnerships that are considering making the push-out election should consult with a tax professional to determine whether the election is available and to ensure that the partnership is in compliance with all applicable requirements.
Frequently Asked Questions
What is the purpose of the IRC Section 6226 push-out election?
The purpose of the push-out election is to allow partnerships to push out adjustments to their partners in the event of an audit, avoiding entity-level tax and related penalties and interest.
Who is eligible to make the push-out election?
Partnerships that are subject to the centralized partnership audit regime and have made an election to be subject to the regime are eligible to make the push-out election.
What information must a partnership provide to its partners to make the push-out election?
A partnership must provide its partners with a statement of the adjustments made and the amount of tax, penalties, and interest due as a result of the adjustments.
How does the push-out election affect the tax liability of partners?
The push-out election allows partners to report adjustments on their individual tax returns, which can result in a lower tax liability than if the partnership were to report the adjustments at the entity level.
What is the deadline for making the push-out election?
The deadline for making the push-out election is within 45 days of the date the partnership receives a notice of a proposed adjustment from the IRS.
Can a partnership revoke the push-out election once it has been made?
No, a partnership cannot revoke the push-out election once it has been made, so it is essential to carefully consider the election before making it.