For years, everyone involved with audits of partnership tax returns (tax professionals, the IRS and the taxpayers themselves) have complained about the often complicated and unclear Tax Equity and Fiscal Responsibility Act (TEFRA) rules. Disputes between the IRS and partnerships, as well as between the various partners, often dragged on for years.
That is if the IRS even bothered to start an audit – audit rates for partnerships were historically low compared to similar size corporate entities. Once an audit finally was completed, the IRS would face the onerous task of tracking down and collecting the assessments from each partner, often having to dive through dozens of tiers to find these ultimate taxpayers. Naturally, this resulted in difficulty collecting the additional tax, making the whole exercise seem futile to some. A better way was needed. TEFRA had to die.