State Tax Group Readying Remarks on IRS Partnership Audit Rules

Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...

By Ryan Prete

A state tax group is ramping up efforts to comment on the IRS’s reissued regulations implementing the new federal partnership audit regime.

“Like practitioners, we have a number of questions that we want the regulations to address, so that we know what to expect,” Helen Hecht, general counsel for the Multistate Tax Commission, said during a July 6 teleconference for the MTC’s partnership work group. “We want to give the IRS an idea of the questions that states have.”

Hecht said the MTC is compiling comments for the IRS, which is accepting comments through Aug. 6. Hecht encouraged states to contribute their questions and comments directly to her so that they can be submitted together.

The proposed regulations (REG-136118-15, RIN:1545-BN77) released June 13 are similar to a January proposal that was withdrawn when the White House announced a regulatory freeze shortly after President Donald Trump’s inauguration. The document navigates the new centralized partnership audit process enacted through the Bipartisan Budget Act of 2015 ( Pub. L. No. 114-74), set to take effect in 2018.

The default regime generally provides for assessment and adjustments at the entity level, rather than among individual partners, and has generated rampant questions and concerns over the flow-through impact at the state level.

Mulling Modified Statute

The July 6 teleconference also highlighted revisions made to draft model legislation unveiled in early June that would assist states in conforming to the new federal partnership audit regime. The revised draft uniform statute was submitted July 5.

Alongside the MTC partnership work group’s efforts, several “interested parties” collaborated on the draft uniform state statute addressing both procedures for reporting federal income tax changes and procedures for reporting changes under the new partnership audit regime. The parties include the American Institute of CPAs, Council On State Taxation (COST), Tax Executives Institute, Institute for Professionals in Taxation, and a task force of the American Bar Association tax section’s State and Local Taxes Committee.

The MTC has set up a comment section on its website for states to submit thoughts on the draft leading up to the MTC’s Annual Meeting from July 31-Aug. 3 in Louisville, KY.

Hecht said she hoped submission of state comments on the revision would bring the group closer to a consensus of understanding.

“We want to give people a chance to ask questions and actually get a response, and collect those questions and responses and present them in a way that everyone can see them,” Hecht said. “This is a first time approach for us and we want to see if this process is workable.”

The next partnership work group teleconference is set for July 20.

To contact the reporter on this story: Ryan Prete in Washington at

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

For More Information

Information on the MTC Partnership Work Group is at

Copyright © 2017 Tax Management Inc. All Rights Reserved.

Request Daily Tax Report: State