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Addressing the new federal partnership audit regime will likely be on states’ legislative agendas in 2018.
“I think we have missed the bullet this time,” Stephanie Lipinski Galland, a Washington-based partner with Williams Mullen, said during a March 3 panel at the Federal Bar Association Tax Law Conference.
During next year’s legislative sessions, however, state officials and practitioners likely will be staring down the issue, she said.
Enacted through the Bipartisan Budget Act of 2015 (Pub. L. No. 114-74), the federal law provides for assessment and adjustments at the partnership entity level—rather than among individual partners—without an election that would transfer liability to the partners.
A technical corrections bill has stalled in Congress, with some lawmakers hopeful it will pass this year. The Internal Revenue Service released proposed rules (REG-136118-15) in mid-January, outlining the agency’s plans to administer the new partnership audit law—and President Donald Trump subsequently ordered it withdrawn two days later.
With both legislative and regulatory efforts stalled at the federal level, many have urged states not to move forward with legislation this year. To date, only Arizona has enacted legislation. A bill appearing to address the early opt-in election was introduced in Minnesota last month. Conformity efforts failed this session in Montana and Georgia.
A task force of the American Bar Association tax section’s State and Local Tax Committee and an American Institute of CPAs work group have collaborated on a checklist for states mulling legislation that responds to or conforms with the federal legislation. The checklist was presented during a Jan. 31 meeting of the Multistate Tax Commission’s partnership work group, which is analyzing state-specific issues arising under the new federal approach.
Galland explained that the checklist presents “issue-raising questions,” in part to raise with and educate state lawmakers on state-specific issues as they consider a response to the federal regime.
“It’s way better to ask all these questions when the bill is being introduced and being worked on at the subcommittee level before it gets all wrapped up at the end of the year,” such as in an omnibus bill, Galland said. “Because if you wait to the end, it will not get passed or it will get so screwed up, you will never recognize it.”
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