For over 50 years, Bloomberg Tax’s renowned flagship daily news service, Daily Tax Report® has helped leading practitioners and policymakers stay on the cutting edge of taxation and...
Dec. 13 — States struggling with uncertainty over the new federal partnership audit regime may want to adopt a wait-and-see approach as federal officials clean up the rules, according to the Internal Revenue Service chief.
As the wrinkles are ironed out at the federal level, IRS Commissioner John Koskinen said that “it will be a little unclear for a while for the states.”
“The general framework is fairly clear,” he said in a Dec. 13 interview with Bloomberg BNA. “And I think what they’re going to have to do is wait probably to see does a technical corrections bill go through that provides some greater clarity. And our regs we hope will complete the circuit.”
The Bipartisan Budget Act of 2015 ( Pub. L. No. 114-74), signed into law in November 2015, modified rules governing federal audits of partnership entities. The default regime provides for assessment and adjustments at the entity level—rather than among individual partners—absent an election that would transfer liability to the partners.
Prompted by questions and criticism regarding the law’s complexity, technical changes were introduced Dec. 6 in the Tax Technical Corrections Act (H.R. 6439, S. 3506), which reports indicate will likely pass in 2017. Likewise, Treasury guidance is anticipated next year.
Koskinen identified the “push-out election” as the primary source of ambiguity in the rules—including the mechanics of the election and which partnerships are eligible.
The push-out election under tax code Section 6226 permits a partnership to avoid the entity-level tax by pushing liability for an imputed underpayment to individual partners. It has generated a lot of pushback over its complexity, including from the American Institute of CPAs.
Koskinen said that the election may generate “a situation more complicated than TEFRA”—the former Tax Equity and Fiscal Responsibility Act partnership audit rules. However, once technical corrections and administrative guidance is finalized, he said that “we’ll be in better shape than we were.”
An impetus behind the new audit regime was lost collection opportunities for underpaid taxes from partnerships, which have been subject to record-low rates of federal audits that are resource-intensive and time-consuming.
By handling adjustments at the first-tier level of partnerships, Koskinen said the regime will improve efficiency for both the administration and partnerships. And in particular, audit coverage will increase.
“It won’t be a quantum leap forward,” he said. “But at least it will be an increase from what we were able to do before.”
To contact the reporter on this story: Jennifer McLoughlin in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Ryan C. Tuck at email@example.com
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 firstname.lastname@example.org.
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 email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)