ABA Task Force Urges Model Law for Partnership Audit Law

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By Jennifer McLoughlin

Sept. 27 — An ABA task force has asked the Multistate Tax Commission to consider model legislation to facilitate state conformity with the new federal partnership audit regime.

During its inaugural Sept. 27 teleconference, the work group spearheading the MTC's Partnership Informational Project heard from an ABA Tax Section, State and Local Tax Committee task force addressing the state implications arising from the new federal law.

Bruce P. Ely, co-chairman of the task force, offered an overview of a memorandum provided Sept. 15 to the MTC that generally urges states' conformity and adoption of the federal rules.

“I think it's a win-win for the states,” Ely said. “If the feds are projecting $9.3 billion or $10 billion revenue pick-up, then clearly the states would see this as maybe not found money, but revenue that would come in the door almost automatically” with increased IRS audit activity and increased taxpayer compliance.

Ely also proposed a collaborative effort including task force members and the MTC on a model revenue agent report (RAR) statute—legislation that the task force considers “part and parcel” of the project.

Federal Status

The Bipartisan Budget Act of 2015 (Pub. L. No. 114-74), signed in November 2015, seeks to simplify partnership audits by providing for assessments and adjustments at the partnership level. The IRS plans to propose implementing regulations by the end of the year. Last month, it released temporary regulations (T.D. 9780) on the option to elect-in early.

However, legislation proposing technical changes to the law's partnership audit regime could also surface before year's end, which could impact the IRS rules or state conformity statutes (2016 Weekly State Tax Report 13, 8/19/16).

The MTC had established a work group to address several questions related to the new federal rules. During the MTC's annual meeting in Kansas City, Mo., in July, the Uniformity Committee approved a drafting project to start developing model language for states (2016 Weekly State Tax Report 11, 7/29/16).

Urging States Conformity

Ely said the task force consists of American Bar Association tax section members, including officers from the Council On State Taxation and the Tax Executives Institute. The task force has partnered with the American Institute of CPAs on the project.

In the memorandum, the task force encourages states to conform to the federal rules and adopt the federal elections, “particularly with respect to a partnership that opts-out of the federal rules or a partnership that opts-in early.” Two exceptions to this general rule include the “push-out election” and the “pay up election,” which the task force believes “would increase compliance by reducing administrative burdens.”

So far, Arizona is the sole state that has enacted legislation largely following the federal partnership audit regime. Ely said the task force considers the Arizona statute a “good start,” but said “there's some work to be done” on it.

Next Steps

The MTC work group plans to meet weekly every Tuesday afternoon, at 1 p.m. EST. A list will be maintained to capture issues raised.

MTC staff will conduct a survey of states, seeking feedback on the urgency in state legislative bodies to address the issue. Staff will also reach out to an Arizona practitioner to discuss the state statute with the work group.

To contact the reporter on this story: Jennifer McLoughlin in Washington at jmcloughlin@bna.com

To contact the editor responsible for this story: Ryan D. Tuck at rtuck@bna.com

For More Information

Information on the MTC's Partnership Informational Project is at http://www.mtc.gov/Uniformity/Project-Teams/Partnership-Informational-Project.

The ABA task force memo is at http://src.bna.com/iVZ.

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