Montana CPAs Oppose Partnership Audit Legislation

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By Tripp Baltz

The Montana Society of Certified Public Accountants has come out in opposition to a bill ( H.B. 47) before the state Legislature addressing new rules for partnerships with tax returns adjusted by the Internal Revenue Service.

The bill’s sponsor, Rep. Zachary Brown (D), told Bloomberg BNA the MSCPA has “backed out of negotiations” and is “committed to opposing the bill.” He said the group was “pretty much digging their heels in.” Montana would be only the second state to enact conformity legislation with the new audit regime (after Arizona).

Meanwhile, a chorus of advocacy groups have joined to call for state legislatures to take a “go-slow” approach in considering legislation to conform to the new IRS federal partnership audit regime until Congress passes a pending technical corrections bill (H.R. 6439, S. 3506). One prominent member, the Council On State Taxation, recently discussed its concerns with Montana’s bill with Department of Revenue personnel, Lee Baerlocher, administrator of the Department’s Business and Income Taxes Division, told Bloomberg BNA.

Moreover, the White House has directed agencies to withdraw those regulations submitted to the Office of the Federal Register but not yet published in the Federal Register, which includes the Internal Revenue Service’s Jan. 18 proposed regulations (REG-136118-15) implementing the new partnership audit regime.

President Donald Trump’s regulatory moratorium delays direction on how the federal law will operate in practice. Many states have been awaiting that guidance, along with the pending technical corrections bill, as they mull how to address the new regime introduced in the Bipartisan Budget Act of 2015 ( Pub. L. No. 114-74).

Working on Bill

The MSPCA, the state chapter of the American Institute of CPAs, had been working with the Montana DOR to make changes to the bill, which Brown said “needed work” before it could be voted on by the committee and forwarded to the full House. The measure, now awaiting action in the Montana House Taxation Committee, would require partnerships in the state with returns adjusted by the IRS to file an amended return with the department and pay at the partnership level.

Individuals with tax liability changes can opt out and pay the tax at the individual level under the bill, which mirrors the federal rules enacted by Section 1101 in the Bipartisan Budget Act of 2015 which applies to tax years beginning Jan. 1, 2018, according to the bill’s fiscal note.

COST, the Tax Executives Institute, the AICPA, and the State and Local Tax Committee of the American Bar Association Section of Taxation recently proposed a model state law for reporting federal audit adjustments. The groups proposed changes to the Multistate Tax Commission’s 2003 uniform model statute for revenue agent report (RAR) laws, but they have urged states to wait on enacting conforming legislation until after Congress passes the technical corrections bill.

It is expected that Congress will soon pass the technical corrections bill to address unanswered questions about new federal partnership audit procedures under the regime.

‘Hold Up.’

Jane Egan, executive director with MSCPA in Helena, told Bloomberg BNA the group “opposed the bill in the hearing and asked the committee to hold up on it.” She said the department “is saying the bill does not conform with the flawed federal legislation, but we say it does.”

“We are going to present them with an analysis showing them where it does line up,” she said.

Start Looking at Law

Charles M. Ruchelman of Caplin & Drysdale Chartered, told Bloomberg BNA it’s good for states to be considering legislation now. Ruchelman maintains a blog on his firm’s web site that provides information on the “partnership representative” rules and other elements of the new partnership regime.

“A pure wait-and-see approach is probably not what I’d recommend,” he said. “We’ve been under ‘wait-and-see’ since the BBA was enacted at the end of 2015, and now here we are at the end of January 2017. The effective date is Jan. 1, 2018, so we’re 11 months away.”

“If I were an administrator in a state tax department, I would start looking at the current law—the 2015 BBA—and be thinking about drafting conformity legislation with the federal law,” he said.

To contact the reporter on this story: Tripp Baltz in Denver at

To contact the editor responsible for this story: Ryan C. Tuck at

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