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June 06, 2021 The Tax Lawyer

When Does a BBA Partnership Terminate?

Vol. 74, No. 3 - Spring 2021

by Andrew L. Lawson


The death of a tax partnership has recently taken on increased importance. Under the centralized partnership audit regime enacted as part of the Bipartisan Budget Act of 2015 (the BBA), whether a partnership “ceases to exist” can change the identity of the persons who are liable for unpaid tax. But the statute and regulations implementing the BBA audit regime create uncertainties surrounding this event. The regulations give the Service broad discretion to determine that a partnership continues to exist for purposes of the BBA even if it has terminated under general partnership tax rules. This discrepancy between the general partnership tax rules and the BBA makes it difficult for taxpayers to plan their affairs and places a premium on quality tax advice. In addition, the statute and regulations provide no guidance for how the BBA applies when one or more constituent partnerships to a transaction, such as a merger or division, continue their existence after the transaction. This omission is troublesome, given that the regulations imply that multiple partnerships can survive a merger or division for purposes of the BBA.

This Article provides suggestions for reducing this uncertainty in the BBA’s cease-to-exist rules. It suggests that a partnership should automatically cease to exist under the BBA when the partnership has terminated under the general partnership tax rules. It then suggests that Treasury and the Service should issue guidance clarifying the operation of the BBA in the context of transactions such as partnership mergers and divisions. Among other things, this guidance should provide for joint and several liability among certain partnerships after partnership divisions and similar transactions. The Article concludes by offering practical guidance for navigating the regulations and possible legal avenues to challenge the Service’s discretion under the BBA “cease-to-exist” regulations.

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