The American Institute of CPAs (AICPA) has submitted more than 40 specific recommendations to the Internal Revenue Service (IRS) to consider when drafting the necessary administrative guidance to implement the new partnership audit rules, which were enacted as part of the Bipartisan Budget Act of 2015 and are generally effective for tax years 2018 and later.
The AICPA explained in its October 7 letter that the 2015 Budget Act established a new centralized partnership audit regime (Regime), which will generally centralize the ability of the IRS to audit, assess and collect any determined underpayment of tax directly from a partnership, subject to certain available elections. Those elections include allowing certain partnerships to opt-out of the Regime, as well as an election for partnerships to push-out the responsibility for payment of any assessment imposed to its partners. Implementing the Regime, the AICPA stated, will require balancing a simplified assessment and collection process imposed at the partnership level against the general expectation that tax is imposed only on the appropriate taxable individual or entity, only on the properly calculated amount of taxable income and only at the appropriate rate of tax as enacted in the applicable section of the Internal Revenue Code.
The AICPA explained that its recommendations are focused on the new procedures that will occur prior to the commencement of an examination, between the time an assessment is proposed and made final by the examiner, as well as the determination of which individuals and entities are ultimately responsible for paying the appropriate share of an assessment.
Specifically, the AICPA made recommendations covering issues related to the small partnership opt-out, selection of the Partnership Representative, calculation of the modified imputed underpayment, the election to push-out adjustments to the partners and filing Administrative Adjustment Requests with the IRS. The letter stated that the AICPA’s recommendations are designed to balance the IRS’s desire to simplify the assessment and collection of audit adjustments from complicated multi-tier partnership structures with the tax code’s basic principles of fairness and equity.
The AICPA noted that a subsequent letter will address a number of areas of concern regarding the impact of the new Regime on substantive Subchapter K tax issues related to Subchapter S corporations, as well as state level tax adjustments resulting from partnership audits under the Regime.
In addition, the AICPA wrote that it intends to submit a separate comment letter to the appropriate congressional committees to identify areas where it believes legislative changes are required to facilitate the ability of the IRS to fairly and equitably administer the Regime.