A partnership can elect out of the centralized partnership audit regime for a tax year if it is an eligible partnership that year.
To make a valid election out, complete:
- Form 1065, U.S. Return of Partnership Income, Schedule B, answer yes to question “Is the partnership electing out of the centralized partnership audit regime under section 6221(b)?” [question 29, 2021 version], or Form 1066, U.S. Real Estate Mortgage Investment Conduit (REMIC) Income Tax Return, check the box to question G in ‘Additional Information’ section
and
- Schedule B-2, Form 1065, Election Out of the Centralized Partnership Audit Regime PDF , list each eligible partner’s name, U.S. Taxpayer Identification Number and type of eligible partner. Include all shareholders for any partner that is an S corporation.
Note: All elections out are valid unless the IRS determines otherwise. If we determine an election out is invalid, we will notify the partnership in writing.
Eligible partnerships
Partnerships with 100 or fewer partners for the taxable year can elect out of the centralized partnership audit regime if all partners are eligible partners.
Eligible partners are:
- Individuals
- C corporations
- Foreign entities that would be treated as a C corporation if it were domestic
- S corporations
- Estates of deceased partners
To calculate the number of eligible partners, add the number of Schedules K-1 the partnership is required to issue to partners and include all shareholders for any partner that is an S corporation.
Ineligible partnerships
Partnerships are not eligible to elect out of the centralized partnership audit regime if they are required to issue a Schedule K-1 to partners that are:
- Partnerships
- Trusts
- Foreign entities that would not be treated as a C corporation were it a domestic entity
- Disregarded entities
- Estates of individuals other than deceased partners
- People who hold an interest in the partnership on behalf of another person
Regulations
