Daily Tax Update - June 13, 2017: IRS Re-Releases Partnership Audit Proposed Regs

IRS Re-Releases Partnership Audit Proposed Regs:  Today the IRS re-released proposed regulations (REG-136118-15) for the implementation of the new centralized partnership audit regime enacted by the Bipartisan Budget Act of 2015 (the BBA). The proposed regulations were initially unofficially released on January 18, 2017; however, the rules were never published in the Federal Register as a result of the Trump Administration’s memorandum freezing guidance. The re-released proposed regulations are largely similar to the January 18, 2017 unofficially released rules.

The BBA repeals current rules governing partnership audits and replaces them with a new centralized partnership audit regime that, in general, assesses and collects tax at the partnership level. The new regime applies to returns filed for partnership taxable years beginning after December 31, 2017 and to returns filed by partnerships that elect application of the centralized partnership audit regime for tax years between November 2, 2015 and January 1, 2018. The proposed regulations provide rules for partnerships subject to the new regime, including procedures for electing out of the centralized partnership audit regime, filing administrative adjustment requests, and determining amounts owed by the partnership or its partners attributable to adjustments that arise out of an examination of a partnership. The proposed regulations also address the scope of the centralized partnership audit regime and provide definitions and special rules that govern its application, including the designation of a partnership representative.

Despite the re-release of these proposed regulations, significant open issues still remain. The path forward likely will include not only the finalization of these proposed regulations but also a legislative push to amend the BBA rules for a number of such open issues, including issues related to tiered partnership structures. Tax partnerships, regardless of industry, jurisdiction, or partner status, need to address the new economic and tax dynamics created by these rules, including creating contractual over-rides or other processes that prevent the new rules from upsetting the business and economic deals struck by partners and, in certain circumstances, prevent the new rules from creating new tax issues for partners.

Treasury Department Requests Comments on Regulations to be Reviewed:  Today, the Treasury Department issued a request for comments on Treasury regulations that can be eliminated, modified, or streamlined under Executive Order 13771, which directs agencies to eliminate two regulations for each new regulation issued. The request for information states that the Treasury Department is developing a task force, as directed under Executive Order 13777, which will evaluate existing regulations and make recommendations to the treasury secretary to prioritize their possible repeal, replacement, or modification. Comments are due by July 29.

CHARITY Act Introduced in Senate:  Today, Senators John Thune (R-SD) and Bob Casey (D-PA) introduced the Charities Helping Americans Regularly Throughout the Year (CHARITY) Act of 2017 in the Senate. The bill, which is similar to a bill of the same name introduced in the last Congress, includes the following provisions, which encourage charitable giving and simplify certain private foundation rules:

  • A statement that  the Senate does not intend to diminish the charitable deduction in any comprehensive reform of the tax code and that encouraging charitable giving should be a goal of tax reform
  • Authorization for the Treasury Department to issue regulations to set the simplified standard mileage rate for the use of personal vehicles for volunteer charitable services as equal to the mileage rate that applies to the deduction for medical and moving expense
  • Elimination of a controversial provision providing for donee reporting as an alternative to the usual process for charitable contribution substantiation
  • A requirement that all tax-exempt organizations file Form 990 electronically
  • Expansion of the rule allowing an exclusion from gross income for distributions made from an individual retirement account (IRA) directly to public charities to include distributions to donor-advised funds (and requiring additional reporting from donor advised fund sponsors)
  • Replacement of the current two-tiered excise tax on investment income of private foundations with a single rate of one percent
  • Creation of a limited exception to the excess-business-holdings rules for private foundations that own philanthropic businesses