The BBA’s ‘Cease to Exist’ Rule in Partnership M&A Transactions

Under the centralized partnership tax audit regime enacted in 2015 as a part of the Bipartisan Budget Act (the “BBA”), when the Internal Revenue Service (“IRS”) makes an assessment for an underpayment of tax of a partnership, the IRS generally must first seek payment directly from the partnership itself rather than from its partners. Under the BBA, however, the partnership may, through its “partnership representative,” elect to “push out” that tax assessment liability to its partners, thereby shifting the statutory obligation to pay tax from the partnership to certain of its partners by operation of the statutory law. Furthermore, if the partnership is no longer in existence, for example due to the partnership being acquired by a corporation and terminated for the purposes of Subchapter K of the Internal Revenue Code, the BBA permits the IRS to cause the partnership to make a “push out” election by determining in the IRS’s discretion that such partnership has “ceased to exist.” In this article, Christian Brause, Eric Grosshandler, and Alvin Wang explore the consequences of the BBA’s ‘cease to exist’ rule in partnership M&A transactions.