States, Tax Groups Racing to Final Model Partnership Audit Law

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 Che Odom

A leading organization that develops uniform tax laws for states will soon provide formal feedback to a coalition of industry groups finalizing a model statute regarding partnership audits.

“We are wrapping up our comments and will begin to circulate them in a couple of days,” Helen Hecht, general counsel of the Multistate Tax Commission, said during a conference call Oct. 12. The feedback will be distributed to a coalition of industry-taxpayer groups, she said.

The coalition, known as “the interested parties,” includes the Council On State Taxation, the Tax Executives Institute Inc., the Institute for Professionals in Taxation, the American Institute of CPAs, and a task force of the American Bar Association tax section’s State and Local Tax Committee. The interested parties have proposed a model uniform statute and regulation and presented it to the MTC for its review.

“Each of the interested parties will soon ask for official approval from our individual organizations, so we are looking for MTC feedback on it,” Bruce P. Ely, senior partner in the Birmingham, Ala., office of Bradley Arant Boult Cummings LLP, said during the conference call.

The proposed model is designed to promote uniformity among states conforming with the new federal partnership audit regime, thereby aiding multistate entities with compliance. The interested parties hope that the MTC, which itself develops model acts, will give the model statute its blessing in time for the coalition to provide a final version to state lawmakers around the country by November, when some state legislative committees begin meeting. The new federal partnership audit regime, part of the Bipartisan Budget Act of 2015, takes effect Jan. 1.

Right now, the MTC and the interested parties continue to iron out details and address concerns that states have with the draft model.

Ely said he hopes the interested parties and the MTC can approach state lawmakers “arm and arm” to avoid competing proposals.

Addressing State Conformity

States, along with the MTC, have been working for the last several months on addressing the state-side impact of the new default regime for partnership audits.

The Internal Revenue Service’s proposed regulations (REG-136118-15, RIN:1545-BN77), which will carry out the regime, generally provide for assessment and adjustments at the entity level, rather than among individual partners, and they have generated a host of questions and concerns over the flow-through impact at the state level.

Ely, co-chair of the ABA State and Local Tax Committee task force, helped organize the coalition of interested parties in developing their model act to address state conformity with the federal regime.

He told Bloomberg BNA that they are attempting a “fair and balanced attempt at streamlining the reporting process for taxpayers while not depriving the states of the tax they are entitled to collect as a result of what we expect to be substantially increased IRS audits.”

To contact the reporter on this story: Che Odom at COdom@bna.com

To contact the editor responsible for this story: Jennifer McLoughlin at jmcloughlin@bna.com

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