Form 9-1

Limited liability companies taxed as partnerships may wish to include in their company agreements provisions for naming a partnership representative, as provided in 26 U.S.C. § 6223(a), to work with the Internal Revenue Service in the event of an audit. This form contains basic provisions to designate a partnership representative, as well as optional language mandating certain tax elections. The form does not address issues such as resignation, removal, and replacement of the partnership representative or other matters, which the practitioner should consider addressing in the company agreement when appropriate.

The provisions in this form contemplate that the LLC will designate one person or entity as the “Part­nership Representative” to handle all tax matters, not just those relating to audits. See 26 U.S.C. § 6223(a). However, the partnership representative provided for in the audit procedures of the Internal Revenue Code, 26 U.S.C. §§ 6221–6241, does not necessarily have to be the same person or entity that handles other tax matters, such as filing returns and making non-audit-related elections. For sample language designating a tax matters partner for non-audit tax responsibilities, see section 10.3 in form 8-4 and section 10.3 in form 8-5 in this manual.

See chapter 9 in this manual for further discussion of tax audits, partnership representatives, tax matter partners, and various tax elections available to a partnership.

Optional Provisions for Naming Partnership Representative

Article [article number]

Tax Matters and Partnership Representative

[article number].1 Definitions. In this Article, “Code” means the Internal Revenue Code of 1986 and any successor statute, as amended from time to time. “Section” or “sections” means sections of the Code. “Consolidated audit rules” means the partnership auditing procedures enacted by the Bipartisan Budget Act of 2015 and encoded at Code sections 6221–6241, as amended from time to time, including any treasury regulations promulgated thereunder.

[article number].2 Designation of Partnership Representative. With respect to tax years beginning after December 31, 2017, the partnership representative (“Partnership Representa­tive”) of the Company, defined in Code section 6223(a), shall be [name of manager, member, or previous tax matters partner], or any Manager, Member, or other person with a substantial presence in the United States designated by the [manager/members] in the manner prescribed by the Internal Revenue Service (IRS). The Partnership Representative shall have the author­ity to act on behalf of the Company for all tax matters.

[article number].3 Tax Audits. In the event the Company is the subject of a tax audit by any federal, state, or local authority, to the extent the Company is treated as an entity for pur­poses of the audit, including administrative settlement and judicial review, [the Partnership Representative shall have sole authority to act for, and the Partnership Representative’s deci­sion shall be final and binding on, the Company and each Member thereof/before the Partner­ship Representative takes any actions contemplated by Code sections 6222–6232, the Partnership Representative must obtain the consent of a Simple Majority of all Members. No Member (including the Partnership Representative) shall take any action left to the determina­tion of an individual Member under Code sections 6222–6232 without the consent of a Simple Majority of all Members].

[article number].4 Obligations between Partnership Representative and Members. The Partnership Representative shall provide to each Member a copy of any notice, document, or other written communication received from any tax authority as soon as practicable after the Partnership Representative has received such notice, document, or communication. Each Member shall reasonably cooperate with the Partnership Representative in connection with any tax audits or other tax matters.

[article number].5 Electing Out of Consolidated Audit Rules. For each tax year in which the Company is eligible to elect out of the consolidated audit rules, pursuant to Code section 6221(b) and Treasury Regulation 301.6221(b)-1, the Company shall do so. The Partnership Representative shall timely comply with all IRS procedures for making such an election.

[article number].6 Transfer Restrictions. Any transfer of a Membership Interest that would make the Company ineligible for electing out of the consolidated audit rules is void and shall be treated as if the transfer had never been made.

[article number].7 Push-Out Election. For any tax year in which the Company is ineligible or unable to elect out of the consolidated audit rules, the Company shall make the push-out election described in Code section 6226. The Partnership Representative shall timely comply with all IRS procedures for making the election. The Partnership Representative shall take any other such action as is reasonably necessary or appropriate to ensure that the allocation among the parties responsible for taxes (including any interest and penalties associated with taxes) imposed with respect to the income of the Company is, to the greatest extent reasonably feasi­ble, consistent with what the responsibility for taxes (including any interest and penalties associated with taxes) would have been if the Company had been eligible to elect out, and had elected out, of the consolidated audit rules. The Partnership Representative shall equitably apportion among current and former Members the cost of contesting any adjustments asserted by the IRS with respect to the Company’s income.

[article number].8 Partnership Adjustments. In the event the IRS finally determines a part­nership adjustment with respect to the Company, Members shall fully cooperate as reasonably requested by the Partnership Representative in efforts to reduce any imputed underpayments, including by (a) promptly providing any information requested by the Partnership Representa­tive and (b) timely filing amended tax returns and timely paying any tax due in accordance with Code section 6225(c)(2). Any imputed underpayment or other partnership adjustment shall be apportioned among the Members in such a way that, to the maximum extent possible, the tax and economic consequences of the partnership adjustment and any associated interest and penalties are borne by the Members based on their interests in the Company for the “reviewed year” (as defined in Code section 6225(d)(1)). This apportionment shall be made even if it results in a shifting of tax and economic consequences and any associated interest and penalties from adjustment-year Members to reviewed-year Members. The apportionment shall be made during the Company’s fiscal year in which the adjustment is finally determined by the IRS.

[article number].9 Indemnification. The Company shall bear all expenses incurred in con­nection with any tax authority audit, investigation, settlement, or review. The Company and the Members agree to defend, indemnify, and hold the Partnership Representative, or whoever is from time to time appointed or acting as Partnership Representative, harmless from all rea­sonable claims, costs, and expenses, including fees of attorneys, accountants, and experts, incurred in acting as Partnership Representative during or after the existence of the Partner­ship. The Company and Members further agree to execute such powers of attorney and other forms and authorizations as may be necessary or required for the Partnership Representative to perform his duties.

[article number].10 Survival of Membership Obligations. The obligations of each Member under this Article shall survive the transfer or redemption of all or any portion of the Mem­ber’s interest in the Company, the termination of this Agreement, and any dissolution or ter­mination of the Company.

[article number].11 Intention to Comply with Bipartisan Budget Act of 2015. The Mem­bers intend the provisions of this Article to comply with Code sections enacted pursuant to the Bipartisan Budget Act of 2015, as amended from time to time, and any treasury regulations promulgated thereunder. This Article shall be interpreted consistent with such Code sections and regulations. To the extent that the provisions of this Article conflict with any other provi­sions of this Agreement, this Article will control.