Building resilience: Future-proof your partnership’s tax function
For private partnership chief financial officers and their finance teams, increasing scrutiny by the IRS, a heightened focus on tax and back-office functions among limited partners, and the democratization of private market investing are complicating the tax function. Meanwhile, limited in-house tax resources and a dearth of accounting talent entering the industry are making matters trickier.
Faced with these challenges, many partnerships are looking to outsource parts of the tax process and leverage technology-enabled solutions to streamline their efforts. Partnerships that can move beyond temporary fixes for inefficient and error-prone processes—and instead turn their data and systems into long-term advantages—will gain a competitive edge over their peers.
It’s our job to enable other parts of the business. We are there to be that driving force and to ensure that scalable infrastructure is in place so that any growth is sustainable.
Peter Mahoney, CFO, HarbourVest
RSM understands the unique challenges that partnerships face and seeks to empower them with tailored tax strategies and advanced technology to transform the tax function into a more scalable, strategic asset.
Top five partnership challenges
Below, we share insights on these challenges and how partnerships can future-proof the tax process. In addition to drawing on our experience supporting a diverse set of clients across private equity, real estate and hedge funds, we leverage data from an RSM-sponsored survey of private equity partnerships to illustrate the most pressing issues and areas of opportunity for partnerships today.
Regulatory compliance
Regulatory compliance
Keeping up with changing tax regulations and ensuring a partnership remains compliant can be a full-time job. Many entities, including partnerships operating in multiple states and internationally, must deal with the complexities of multijurisdictional compliance. On top of this, partnerships’ continued expansion into the private wealth channel creates more regulatory complexity and potential risk.
Maintaining proper regulatory compliance is critical as the consequences of noncompliance are steep, and include penalties, audits and reputational damage. But with back offices already stretched thin and fewer college graduates seeking accounting roles, dedicated knowledge is often needed.
RSM provides its partnership clients with regular compliance reviews and updates, leveraging our compliance tools and advisory services to stay ahead of regulatory changes. Learn more about our:
State and local tax (SALT) services Regulatory compliance consulting services
Risk management
Risk management of audits and controversies
The structure of partnerships creates various tax risks and can increase the likelihood of controversies, such as disputes about complex allocations from the wealth management channel or issues arising from mergers and acquisitions.
These issues can be proactively addressed with a risk management process driven by sound planning and accurate data management and supported by dedicated strategic advisory services.
RSM has the private industry experience to help identify and manage risks and deal with tax controversies. Our specialized resources include:
Tax controversy services Risk advisory and consulting services
Costs and efficiency
Costs and efficiency
Manual processes and outdated systems for tax compliance and administration incur high and often unnecessary costs and reduced effectiveness, particularly in complex partnership structures. These headwinds can limit cost management efforts and impair the financial health of the partnership.
Meanwhile, investors are demanding more information from partnerships today. Limited partners’ scrutiny of back-office functions has increased substantially in recent years. Investors are particularly focused on areas like compliance, valuation policy, accounting procedures, information technology systems and data management.
At RSM, we leverage our technical knowledge and proprietary tax software, PartnerSight®, to deliver cost savings and enhance operational and tax efficiency through process automation and systems integration. RSM can support partnerships through:
Data management
Data management
In an increasingly digital environment, data quality can make or break your business. Partnerships face complexities in securing, managing and integrating large volumes of tax data as well as myriad risks like data fragmentation and manual data errors. These can lead to inaccurate filings and increased audit risks.
Improving tax data quality through technology not only addresses these risks, but also opens opportunities for efficiency, enabling proactive reporting, timely Schedule K-1 delivery and smarter allocation of partnership resources to higher-value services.
RSM can transform your tax data into a strategic asset through:
Tax credit complexity
Identifying and securing tax credits and incentives for partnerships with diverse investment portfolios can be frustrating without the proper guidance. CFOs often lack the time or resources to navigate eligibility criteria, understand the application process and ensure proper documentation.
Examples of tax credits
Tax credit
Research and development (R&D) tax credit
Example
A biotechnology partnership invested $1 million in developing new medical treatments. By claiming the R&D tax credit, they reduced their federal tax liability by approximately $100,000.
Work opportunity tax credit (WOTC)
A manufacturing partnership hired 15 employees from target groups eligible for the WOTC. They received an average credit of $2,400 per employee, resulting in a total tax savings of $36,000.
Disabled access credit
A small-restaurant partnership spent $20,000 to make their facilities accessible to persons with disabilities. They claimed the disabled access credit and received a tax credit of $10,000.
Energy-efficient commercial buildings deduction
A real estate partnership invested $300,000 in energy-efficient lighting and HVAC systems for their office building. They were able to deduct $90,000 from their taxable income.
Low-income housing tax credit (LIHTC)
A real estate development partnership invested in a low-income housing project, receiving an LIHTC of $500,000 over 10 years.
RSM applies specialized knowledge and experience to help you comb through complex tax regulations and maximize eligible tax credits. We offer credit advisory services geared to your specific needs:
Future-proof your partnership tax function
Tax management is a necessary function for growing partnerships. These obligations can become a business liability when not managed properly and proactively. Scalable tax solutions that grow with the partnership—supported by technology and the deep technical knowledge of a dedicated advisor like RSM—can bolster your long-term strategy.
Flexible and robust tax systems, underpinned by high-quality data, can add value to a partnership on multiple levels. They lead to more reliable recordkeeping, enable your tax team to be proactive and free you to focus on higher-priority projects.
Explore the RSM services linked through this insight for more detailed information, and contact us for personalized support.
Featured solution
Partnership tax planning
Tax advice and planning for the partnership and its partners. Cover all of your compliance issues and more.
