Reconciling State and Federal Audits After New IRS Partnership Audit Regulations: Tax Reporting Challenges

The new IRS partnership audit rules have significant implications for the state and local taxation of partnerships and their partners. In response to these new federal rules, tax practitioners must prepare for the wave of challenges in state tax audits, assessments and collection procedures as states issue new regulations regarding partnership audits and collections.

The new federal rules are procedural and not substantive tax law and therefore not automatically adopted by states that conform to Internal Revenue Code provisions on taxable income. The majority of states follow federal tax law, which treats partnerships as pass-through entities, and the partners are responsible for paying income tax. The differences in federal and state tax regimes cause inconsistency in tax administration, especially for partnerships doing business in some states with differing procedures for handling partnership audits.

States such as Arizona, California, Georgia, and others have adopted special procedures in response to the new federal regulations that address concerns by taxpayers about partnership audits, assessments and collections. The Multistate Tax Commission has provided model partnership audit reporting statutes to streamline how taxpayers should report federal adjustments to states resulting from the partnership audit rules.

Tax professionals must address the state tax law challenges that arise from the new federal partnership audit rules. Proper tax planning must entail some factors that typically don’t occur on the federal tax level, such as the apportionment of income of a multistate partnership, treatment of state tax credits and other incentives, and items relating to taxable nexus.

Listen as our panel discusses primary components of the new federal partnership audit rules, the impact on state tax administration, and new state tax regulations for partnership audit reporting.

1. IRS final partnership audit regulations
2. Constitutional limitations
   1. Nexus
   2. Nonresident and out-of-state partnerships
   3. Discrimination
   4. Fair apportionment
3. MTC model partnership audit reporting statute and recent state regulations
4. Challenges with push-out election, tiered structures and new QBI deduction
5. Key planning techniques and best practices for tax professionals

The panel will review these and other critical issues concerning the impact of the new IRS partnership audit rules on state tax administration:

• Critical components of the IRS final partnership audit regulations
• Understanding constitutional limitations such as nexus, residency, discrimination and fair apportionment
• The MTC model partnership audit reporting statute
• Recently enacted and pending state regulations addressing state tax audit, procedures and collections
• Issues with the push-out election, tiered structures and the new QBI deduction in state tax administration
• Best practices for tax professionals in handling state tax reporting of federal audits and reassessments

Learning Objectives

After completing this course, you will be able to:

• Recognize the critical components of the new federal partnership audit rules impacting state tax administration
• Understand the constitutional limitations such as nexus, residency, discrimination and fair apportionment
• Ascertain a detailed analysis of the MTC’s model partnership audit reporting statute
• Identify principal components of recently enacted and pending state regulations addressing state tax audit, procedures and collections
• Acquire methods for handling challenges associated with the state tax reporting of federal audits and reassessments

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite:

  Three years+ business or public firm experience at mid-level within the organization with supervisory authority over other preparers/accountants in preparing complex tax forms and schedules and preparing for partnership audits. Specific knowledge and understanding of partnership structures and operating agreements and IRS partnership audits. Familiarity with new partnership audit rules under the Bipartisan Budget Act of 2015.

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.

IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).