State model bill for tax partnership audits moves ahead with AICPA’s leadership

September 26, 2018

State model bill for tax partnership audits moves ahead with AICPA’s leadership

A model bill is nearing the finish line that states can use to conform their tax laws to federal changes that govern reporting adjustments to income as a result of the centralized partnership audit regime (Regime).  The American Institute of CPAs (AICPA) played a leading role in the model bill’s development, which will receive a public hearing by the Multistate Tax Commission (MTC) on October 15.   The MTC Executive Committee will subsequently review a report from that hearing before taking a vote to approve the model statute.

Recognizing the importance of developing a model statute, the AICPA formed the State Partnership Audits Task Force, which is comprised of AICPA members with expertise in state tax and partnership tax issues, to work on the issue. The goal is to prevent substantial variance in how individual states dealt with implementing rules to conform to changes enacted by Congress in 2015.   

The task force has been led by Jonathan Horn and Eileen Sherr, senior managers on the AICPA Tax Policy and Advocacy Team, and collaborated with other interested state tax stakeholders to develop a model statute.  The stakeholders group included the Council on State Taxation, Tax Executives Institute, the ABA Section of Taxation’s State and Local Tax Committee, the Institute for Professionals in Taxation and the Master Limited Partnership Association.

So far, Georgia and California have passed legislation based on the model statute. Georgia’s bill was signed into law earlier this year. Adopting the MTC model statute would allow a state to collect its share of liabilities flowing from an Internal Revenue Service (IRS) partnership audit and prevent it from facing substantial legal and administrative concerns.  The model statute also addresses the changes made to federal audit procedures by the Regime that impact state specific issues, such as residency and apportionment.

The AICPA task force has provided information to state CPA societies as they work with state legislators and help state authorities develop new state partnership audit rules over the next few years.

Audits of partnerships by the IRS under the new Regime will not begin until late 2019, and the first completed audits are unlikely to occur until late 2020 or early 2021.

More details regarding the new federal Regime and the AICPA comments on the proposed regulations are provided in an article published in The Tax Adviser and on the AICPA Partnership Audits Webpage