Very generally, under the centralized partnership audit regime, if a partnership over-allocates income to a tax-exempt or non-U.S. investor, and correspondingly under-allocates income to a taxable investor, then the IRS can assess a liability for the tax underpayment directly against the partnership (instead of having to pursue each partner separately, as was the case before 2018).  In addition, the new regime replaces the concept of “tax matters partner” with “partnership representative.”

The new regime generally is effective for tax years beginning after December 31, 2017.  Accordingly, over the past year, many partnerships have updated their operative agreements to, among other things, designate a partnership representative and give the partnership representative authority to (1) "push out" the partnership's tax liability to current partners, (2) require partners from the audited year to file amended tax returns, or (3) cause the partnership to pay the tax liability itself and seek reimbursement from the appropriate current or former partners. 

However, some partnerships have delayed updating their operative agreements pending the issuance of further guidance under the regime.

The IRS has now issued two sets of final regulations under the centralized partnership audit regime.  Partnerships that have not yet reviewed and reconsidered their operative agreements should do so now in light of these regulations.