For over 50 years, Bloomberg BNA’s renowned flagship daily news service, Daily Tax Report® has helped leading practitioners and policymakers stay on the cutting edge of taxation and...
Oct. 25 — The Internal Revenue Service is looking at a number of ways the new partnership audit regime may affect tax-exempt organizations, an agency official said.
Certain partnerships with 100 or fewer eligible partners, which include tax-exempt organizations, can opt out of the regime, and there needs to be “clarity about what that means,” said Janine Cook, deputy associate chief counsel at the IRS Tax-Exempt and Government Entities Division. She said a “huge contingency” in the general counsel’s office is dealing with the new procedures, created by the Bipartisan Budget Act of 2015 (Pub. L. No. 114-74).
That law allows the IRS to conduct examinations and collect adjustments at the entity level instead of from individual partners. The Treasury Department is crafting regulations for the audit regime, which takes effect for tax years after Dec. 31, 2017. The IRS issued temporary (T.D. 9780) and proposed (REG-105005-16) regulations Aug. 4 that describe how to make an early election under the regime, which is intended to make the audit process easier for the agency.
A partnership’s net adjustments for the reviewed year, the imputed underpayment, will be taxed at the highest corporate tax rate under the rules. There is a modification that can be done if a tax-exempt partner paid unrelated business income tax, something the IRS is also considering, Cook said at an Oct. 25 TEGE Council–Gulf Coast Exempt Organizations Update.
Exempt organizations are “super concerned” about the impact of the regime, particularly about the risk that a partnership could be stuck with an imputed underpayment for a departed taxable partner, Kat Saunders Gregor, a partner at Ropes & Gray LLP, told Bloomberg BNA.
“Are they going to end up paying the tax of some other partner? This cross-liability question is a huge deal. That’s why a lot of exempt organizations are really negotiating hard,” she said Oct. 25.
Exempt organizations are struggling with the decision of whether to force mangers to make a push-out election, which protects them from the risk of paying tax for other individuals but brings with it a higher interest rate, she said. If there isn’t that risk for an organization, and there is unrelated business income tax to be paid, an organization may be better off doing it through the partnership itself, she said.
Another issue the IRS is considering is whether it is private benefit for a partnership to pay tax owed by an individual who left the partnership—an area where it would “be nice to have clarity” that an exempt organization won’t face penalties if it is required to pay someone else’s tax and isn’t abusing the code, Gregor said.
“It would seem a bit unfair, sort of like they’re getting hit with a double whammy,” she said. “They’re potentially paying someone else’s tax and risking their own tax exemption as a result.”
To contact the reporter on this story: Colleen Murphy in Washington at email@example.com
To contact the editor responsible for this story: Meg Shreve at firstname.lastname@example.org
Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)