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The American Institute of CPAs is nudging Congress for a legislative fix to the new federal regime for auditing partnership entities.
In a March 22 letter, the AICPA urged congressional leadership to reintroduce and, “as expeditiously as possible,” enact legislation correcting and clarifying the new audit procedures introduced in the 2015 Bipartisan Budget Act. The letter was addressed to the chairs and ranking members of the Senate Committee on Finance and the House Committee on Ways & Means.
In early December, the Tax Technical Corrections Act (H.R. 6439, S. 3506) offered technical changes to clean up the federal regime, which generally provides for assessment and adjustments at the partnership entity level. The new regime seeks to streamline partnership examinations for the Internal Revenue Service, but has proven complex.
While the corrections bill didn’t pass, many federal lawmakers have anticipated it will push through this year—potentially as part of another legislative package. Reports indicate that Ways and Means ranking member Richard E. Neal (D-Mass.), among the recipients of the letter, plans to reintroduce the legislation this year.
But with health-care repeal and the Neil Gorsuch nomination dominating attention on the Hill, there are no concrete plans for when that might happen.
Proposed regulations (REG-136118-15) implementing the new regime were released in mid-January, but subsequently were withdrawn with a regulatory freeze announced by the White House shortly after President Donald Trump’s inauguration. In its letter, the AICPA highlights the relationship between the corrections bill and proposed regulations—noting that the regulations refer to the technical corrections bill and likely will require revisions post-enactment.
“Since Treasury and the IRS are expected to re-issue the proposed regulations at their earliest opportunity, passage of the ‘Act’ prior to that occurrence would allow them to make any necessary modifications first and provide a heightened degree of certainty to taxpayers on the rules governing partnership audits starting next year, thereby making the guidance process a more efficient one,” the letter said.
Moreover, the AICPA said the corrections bill would directly impact and significantly change several provisions in the proposed regulations. Those changes would furnish additional certainty on taxpayers’ obligations and “provide improvements to the IRS’s ability to fairly and equitably administer the new regime, while reducing the administrative burdens on both the IRS and taxpayers.”
The new audit procedures are set to take effect in 2018—and government officials have indicated there won’t be a delay.
“We have a statutory deadline,” Rochelle Hodes, associate tax legislative counsel in the Treasury Department’s Office of Tax Policy, said March 3 during a Federal Bar Association Tax Law Conference. “We are going to try to figure out how to do all this, but nobody should think this isn’t going to happen, because right now it is.”
Although several states have introduced conformity legislation in this year’s legislative sessions, most have decided to wait for clarification at the federal level—at the urging of several prominent organizations. Only Arizona to date has enacted such legislation.
A concern for several states has been allowing sufficient time to enact legislation and promulgate implementing regulations.
Nikki Dobay, senior tax counsel with the Council on State Taxation, has told Bloomberg BNA that states appear to be wary over delaying conformity legislation because they don’t want to be caught off guard when the new federal regime takes effect and risk losing revenue.
“The states see the big dollar amount that the federal government put on this issue,” she said. “They don’t want to be leaving dollars on the table.”
During the March 23 teleconference of the Multistate Tax Commission’s partnership work group, MTC General Counsel Helen Hecht said the work group may feel the need to act quickly on developing a proposal and getting it into final form for the states—many are seeking a model by the next legislative session. She noted that MTC staff are conscious of the time frame and can work on the process to facilitate a final proposal.
Hecht said MTC staff are contemplating a state survey to gather feedback on certain issues in the upcoming months, which can further inform the work group’s deliberations. The goal could be to present a prioritized list of issues and essential policy choices at the MTC’s summer committee meetings—should the Uniformity Committee endorse the work group’s direction, staff could then start drafting model provisions or language.
Hecht noted that an updated issue list will be available by the work group’s April 6 call. That will incorporate issues and information from the proposed IRS regulations, as well as a comparison of issues raised by a task force of the American Bar Association tax section’s State and Local Tax Committee and an AICPA work group. Starting with the next call, the group plans to begin addressing select topics, including the definition of “final determination,” the partnership representative, and states’ response to a federal modification.
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Text of the AICPA's letter is at http://src.bna.com/ngC.
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