States Advised to Move Slowly With Partnership Audit Law

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By Jennifer McLoughlin

Nov. 1 — A moral from the new federal partnership audit regime is that states shouldn’t fast-track legislation conforming to the new rules.

During a Nov. 1 teleconference, the Multistate Tax Commission’s partnership work group received feedback to a memorandum prepared by MTC staff, underscoring state-related issues arising from the federal rules signed into law November 2015 through the Bipartisan Budget Act of 2015 (Pub. L. No. 114-74). The MTC memorandum highlighted proposed revisions and recommendations provided by members of a task force of the ABA tax section’s State and Local Tax Committee and an American Institute of CPAs work group, which have partnered on a project addressing state implications from the federal law.

In a Sept. 15 memorandum discussed during the MTC work group’s inaugural Sept. 27 teleconference, the American Bar Association Section of Taxation task force generally urged state conformity and advocated a model revenue agent report (RAR) statute.

Jonathan Horn, senior technical manager of tax policy and advocacy with the AICPA, said that while states should start considering their response to the federal regime, there is no urgency. Assuming no early opt-in—with 2017 probably being the earliest opt-in period for most partnerships—states likely won’t see audits completed under the new rules until 2020.

“There’s no need, and in fact it could be harmful, to try to rush through legislation at this point, until we know what some of the rules are,” he said.

Waiting for Feds

According to Horn, 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 following a promulgation process expected to include public comments and hearings.

Members of the ABA task force and the AICPA work group are meeting Nov. 16 with Treasury Department and Internal Revenue Service representatives to discuss issues and recommendations relating to the rules.

There is also the possibility of Congress passing a technical corrections bill as part of a year-end extenders package or omnibus deal.

As the rules are fleshed out at the federal level, Horn cautioned states that legislation pushed through now will likely call for subsequent changes.

“I think it’s better if we get it right from the start,” he said, adding that “unfortunately, we’re seeing at the federal level where they didn’t get it right from the start,” which is creating implementation problems for Treasury and the IRS.

Model RAR Statute

Bruce P. Ely, partner at Bradley Arant Boult Cummings LLP and co-chairman of the ABA tax section task force, is collaborating on a draft RAR statute that starts with the MTC’s model statute. He said that a blacklined copy of the MTC model language—which may also include input from white papers prepared by the Council On State Taxation and Tax Executives Institute Inc.—likely will be circulated in the next month.

However, the ABA task force reiterated its request for the MTC to take the lead in developing a model RAR statute.

MTC Counsel Helen Hecht noted that a uniform RAR statute would expand the scope of the MTC partnership project. Accordingly, she suggested the ABA task force reach out to Wood Miller and Holly Coon—chair and vice chair of the MTC’s Uniformity Committee—to solicit their thoughts on a uniform statute. She also noted that the MTC’s December committee meetings might afford the opportunity for task force members to address the full Uniformity Committee.

To contact the reporter on this story: Jennifer McLoughlin in Washington at

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

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