Overview
Tax Reform Update
The House and Senate Conference Committee has released a policy highlights document, summarizing some of the provisions of the Tax Cuts and Jobs Act that have been agreed to by the committee. After the legislative text of the conference bill is released we will send another update.
The conference bill reportedly will not include a provision from the House bill that would have partially repealed the Johnson amendment, allowing charities to intervene in political campaigns in some circumstances.
Yesterday, the IRS issued a statement that it is monitoring the pending tax legislation in Congress and anticipates issuing the initial withholding guidance in January 2018 reflecting the new legislation.
Proposed Partnership Audit Regulations Provide 'Push Out' Election Rules
Today, the IRS released proposed regulations implementing the new centralized partnership audit regime enacted as part of the Bipartisan Budget Act of 2015. Tax-exempt organizations often make investments through partnerships and may form partnerships to conduct certain programs with taxable and tax-exempt partners. The new audit rules, which go into effect in 2018, generally allow the IRS to assess and collect tax at the partnership level, rather than at the partner level. Where tax-exempt organizations are partners with taxable parties, partnership level tax adjustments can raise private inurement and private benefit concerns. If tax-exempt partners have not yet done so, they should review their partnership agreements and, where necessary, negotiate appropriate revisions.
Today’s proposed regulations provide rules addressing how pass-through partners should take into account adjustments under the alternative to payment of the imputed underpayment described in section 6226 (the so-called “push-out” election). Under the proposed rules, each pass-through partner in an ownership chain is given a choice to either (i) push the adjustments to its partners, shareholders, or beneficiaries, or (ii) pay tax with respect to the adjustments. The proposed regulations provide similar rules for pass-through partners to take into account adjustments requested in an administrative adjustment request under section 6227, if the partnership elects to have its partners take into account the adjustments (or if the partnership is required to have its partners take into account the adjustments). The proposed regulations also make corresponding changes to portions of the previously proposed regulations released earlier this year and provide rules regarding assessment and collection, penalties and interest, and period of limitations under the new centralized partnership audit regime.