Changes to Partnership Tax Audit Rules Will Impact Many Delaware Alternative Entities
New rules for partnership tax audits (the “New Rules”) were adopted that may require changes to the governing documents of existing and future partnerships, limited liability companies and other entities taxed as partnerships for federal income tax purposes. The issues relating to existing entities are likely to be particularly difficult as the governing documents for most existing entities do not contemplate the New Rules. Because so many private equity and hedge funds are formed as Delaware limited partnerships, the state law issues arising in connection with the application of the New Rules will primarily be issues of Delaware contract interpretation and construction.
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