Audit on Behalf of the Representative of a Deceased Partner

Audit on Behalf of the Representative of a Deceased Partner

The line of action by the auditor in such a case will be the same as in the case of an auditor appointed on behalf of a retiring partner. The purpose of an audit representative is to develop the optimal approach to advocate on behalf of the taxpayer. The deceased partner might have died during the course of the financial year and, therefore, the question of computation of the profit or loss, up to the date of death arises. The PR has the sole authority to act on behalf of the partnership in agreeing to settlements, notices of final partnership adjustments, and making partnership elections in regards to audit adjustments. Profit or loss may be calculated on the basis of the average profit or loss of the previous year or the books of accounts may be closed on the date of the death of the partner and Profit and Loss Account may be prepared up to that date. But which course should be adopted? For this, the auditor should refer to the terms of the agreement. No other partner or person may participate in an audit examination or proceeding involving the partnership without the permission of the IRS.

Again the question of computing goodwill of the firm may arise. Goodwill item may not exist in the books of account. The best person to represent your business in tax matters is your CPA or your tax attorney, but ideally, you’ll seek representation by an enrolled agent. He will have to refer to the agreement in which usually a provision is made that goodwill is to be calculated on the basis of the average profits of the previous two or three years. The final rules also permit the partnership to designate itself as its representative if it believes it is the most appropriate person to serve in that capacity. The auditor should see that it is computed correctly and that no capital expenditure is charged to revenue account as this step will reduce the net profit and consequently the share of the deceased partner will also be reduced.

The auditor should also see that correct amounts are charged to revenue account so that the interest of the deceased partner is not sacrificed. Finally, the auditor should see that the account of the deceased partner is correctly debited and credited and thus find out what amount is due to such partner. They help the taxpayer to prepare all requested documents, and they generally handle all correspondence on behalf of the taxpayer, including attending required meetings. The auditor should also find out from the Partnership Agreement as to how the amount due to the representative of the deceased partner is to be paid and advise the representative accordingly.

 

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