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Nov. 15 — It isn’t looking like states are sprinting to pass laws responding to the new federal partnership audit regime in the upcoming session, according to feedback received by the Multistate Tax Commission.
During a Nov. 15 teleconference of the MTC’s partnership work group, General Counsel Helen Hecht said a state survey illustrates a broad interest in discussing state-specific issues associated with the federal audit and adjustment rules enacted in November 2015. However, the interest doesn’t appear to translate into an immediate legislative agenda to conform to the Bipartisan Budget Act of 2015 (Pub. L. No. 114-74).
“For the most part, what we got was answers along the lines of they’re going to want to talk about it,” Hecht said. “But they’re not necessarily going to want to enact anything,” unless the MTC determines something is necessary.
“As we’ve discussed, while we want to start looking at these issues, there may not be the kind of push to do something legislatively here this coming session,” she added.
So far, only Arizona has attempted to conform to the new rules.
During the teleconference, Hecht offered an overview of an updated issues list regarding states’ conformity to the federal rules. She noted that the agenda for the Uniformity Committee’s Dec. 14 meeting will also address the issues arising out of the federal partnership regime.
The MTC memorandum sorts through federal changes and summarizes several state-related issues—focusing on those relating to reporting of state taxes associated with federal audit adjustments (revenue agent report rules). The group will address issues associated with potential amendments to state audit and adjustment procedures later.
Hecht said that the tax code Section 6226 “push-out” election generates the most uncertainty, and is the area likely requiring the most work by the MTC group. It also probably will feel the greatest impact from any Treasury guidance or congressional technical corrections.
Prior to the next call after Thanksgiving, MTC staff will flesh out its issues list to provide more detail on how select federal provisions may work, what issues will flow through to the states and potential options for states’ responses. Hecht identified the push-out election and imputed underpayment as areas of potential focus.
Drilling further down into the issues is intended to squeeze out as much information before the partnership work group determines next steps. Hecht also noted this will allow time to potentially gather more information on where the Internal Revenue Service stands.
Bruce P. Ely, a partner at Bradley Arant Boult Cummings LLP, said he is finishing a draft uniform revenue agent report (RAR) statute, which will be circulated to the MTC’s Uniformity Committee prior to its December meeting.
Ely is co-chairman of a task force of the ABA tax section’s State and Local Tax Committee that has partnered with an American Institute of CPAs work group on a project addressing state implications from the federal law. Members of the task force, including the Council On State Taxation and Tax Executives Institute Inc., will first receive the draft RAR statute next week.
COST is also preparing a paper for members of California’s Franchise Tax Board, Board of Equalization and key members of the State Assembly’s Committee on Revenue and Taxation. The paper will present an issues list relating to state conformity with the federal regime, which will highlight the federal changes and associated state tax implications. It will be presented in February.
Nikki E. Dobay, tax counsel for COST, explained that the paper is intended as a “heads-up,” but will also caution California officials “not to move too quickly and to wait until the issue has been fully vetted at the federal level.”
At this time, the plan is to “draw their attention to the issue and get them focused on thinking about it, so they’ll be ready to react when the federal changes are final,” she said.
Hecht will be joining members of the ABA task force and the AICPA work group during a Nov. 16 meeting with Treasury Department and IRS representatives. The meeting is intended to address, in part, issues and recommendations relating to the new federal rules.
Jonathan Horn, senior technical manager of tax policy and advocacy with the AICPA, said during a prior teleconference that Treasury guidance isn’t expected until the end of this year at the earliest—or more likely in January. Those regulations will only be proposed at that time, with Jan. 1, 2018, as the federal target for final regulations.
There is also the possibility of Congress passing a technical corrections bill as part of a year-end extenders package or omnibus deal.
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More information on the MTC Partnership Work Group is at http://www.mtc.gov/Uniformity/Project-Teams/Partnership-Informational-Project.
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