Partnership Tax Provisions in the Administration's 2014 Fiscal Year Budget Proposal 

    Partnership Provisions in the Administration’s 2014 Revenue Proposals

    The President’s budget proposal for fiscal year 2014 contained the following tax provisions related to partnerships.

    • Tax gain from the sale of a partnership interest on a look-through basis for effectively connected income (ECI) purposes, codifying Rev. Rul. 91-32 and imposing withholding. (p. 57)
    • Expand the definition in section 743(d) of built-in loss for purposes of partnership loss transfers so that the mandatory adjustment rules would apply if a transferee partner would be allocated a net loss in excess of $250,000 if the partnership sold all of its assets in a fully taxable transaction for FMV, even if the partnership itself does not have a “substantial built-in loss” in its assets. (p. 92)
    • Extend partnership basis limitation rules under section 704(d) to nondeductible expenditures. (p. 93
    • Tax carried (profits) interests as ordinary income. (p. 159)
      • The President will work with Congress to develop mechanisms to assure the proper amount of income recharacterization where the business has goodwill or other assets unrelated to the services of the investment services partnership interest (ISPI) holder
      • The proposal is just an outline but generally seems consistent with prior proposals.
      • The proposal notes that other anti-abuse rules may be necessary.
      • The proposal is not intended to adversely affect qualification of a REIT owning a carried interest in a real estate partnership.
      • There is no phase-in proposed, and the proposal would be effective for taxable years ending after December 31, 2013.
    • Require partnerships that must file Schedule M-3 to file their tax returns electronically. (p. 172)
    • Streamline audit and adjustment procedures for large partnerships. (p. 188)
    • Repeal technical terminations of partnerships. (p. 231)
    • Repeal the anti-churning rules of section 197. (p. 232)

    For more information, see the AICPA webpage on this and the Journal of Accountancy article.

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