State and Local Tax Matters

The Bipartisan Budget Act of 2015 enacted a new federal audit regime for partnerships, which gives the IRS the authority to audit partnerships at the entity level AND to assess and collect tax deficiencies directly from the partnership. Full implementation of these new rules is fast approaching. The first IRS audits under the new rules are anticipated to begin as early as 2020 for taxable years beginning after December 31, 2017 (i.e., January 1, 2018 for calendar year filers). The IRS has issued proposed regulations and a technical corrections bill has been widely discussed. While changes from the federal perspective will be significant, those changes may pale in comparison to the problems that may be experienced by the states and thus, state tax liability for the partnership and its partners. The panelists will provide a brief overview of the new federal partnership rules and then turn to the serious implications for the states. The Multistate Tax Commission and state tax authorities are already working with stakeholders such as the Tax Executives Institute, ABA, Tax Section SALT Committee, Council On State Taxation, AICPA, and the Institute of Professional in Taxation to develop model legislation that will help taxing authorities and taxpayers alike with the inevitable state audit complications created by the new federal audit rules.

Erica L. Horn, Steven Wlodychak, and Marianne Evans

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