The Whiches of TEFRA — “Basis Bump” Cases Conjure Ghosts of the
Past for TEFRA Partnership Audits
Steven R. Mather
The 1970s saw a first wave of tax shelters. The entity of choice for most of these 1970s tax shelters was a partnership consisting of many partners. After wrestling with the procedural burden of dealing with these large partnerships, the Internal Revenue Service (“IRS”) got its way in the Tax Equity and Fiscal Responsibility Act of 1982 (“TEFRA”).1 As part of TEFRA, Congress enacted an entirely separate set of audit procedures that applied to certain entities (“TEFRA partnerships”). In an illustration of “be careful of what you wish for,” the audit procedures applicable to TEFRA partnerships (the “TEFRA partnership audit procedures”) proved so difficult to implement that the IRS has struggled with them ever since. The difficulties were so profound that the IRS would rarely audit an entity if it was subject to the TEFRA partnership audit procedures.
Housing was one of the first items on the Senate agenda in April and will receive a great deal of attention until Congress's next recess for Memorial Day.
Final Senate Housing Legislation Covers Businesses, Other Tax Incentives
The Senate passed a bill (H.R. 3221) to provide economic aid to the housing industry, approving two amendments providing more than $1 billion in additional tax relief. The first amendment allows businesses in loss positions to elect to receive refunds of accumulated alternative minimum tax (AMT) and research and development credits in lieu of the bonus depreciation provided in the Economic Stimulus Act passed earlier this year. The second amendment allows taxpayers with losses from Hurricanes Katrina and Rita to avoid paying taxes on grants paid to them in 2005 to cover uninsured losses by adjusting their 2005 casualty loss deduction, and eliminates the December 31, 2007 deadline by which businesses must begin construction of new ventures in the hurricane-affected areas in order to benefit from Gulf Opportunity Zone (GO Zone) bonus deprecation tax benefits.
