ONE STEP CLOSER: AN UPDATE ON PARTNERSHIP AUDIT REFORM IN THE UNITED STATES
In an effort to boost enforcement of tax rules against large, complex partnerships, the US Congress gave the Internal Revenue Service (IRS) a gift in late 2015: the ability to both audit partnerships and collect any underpaid tax directly from those partnerships. These sweeping changes, part of the Bipartisan Budget Act of 2015 (BBA rules), will come into effect for tax years of a partnership beginning in 2018 (unless the particular partnership opts in early). Because Congress left much of the work to implement these new rules to the Department of Treasury (Treasury) through regulations, the business community has been waiting to find out just how expansive the rules will be and many businesses have been left to guess at how individual economic arrangements will fare under the new regime.
We now have the first major insight into Treasury’s plans for the new rules. On 18 January 2017, the Treasury released proposed regulations, although the timing of the release has created uncertainty in the future of these regulations. In the US, federal regulations do not take effect until published in the Federal Register. The proposed regulations were submitted for publication, but never officially published as president Trump froze all unpublished regulations immediately after his inauguration to enable further review by his administration. Nonetheless, the proposed regulations provide partnerships with critical insight into the potential application of the BBA Rules scheduled to come into effect in less than a year.
Apr-Jun 2017 Issue
Ropes & Gray LLP