Mac Norman wrote an article for CPA Journal titled “The Bipartisan Budget Act Audit Regime: Traps for the Unwary.”
In the article, Mac analyzes common pitfalls and administrative bottlenecks that taxpayers and their advisors frequently confront in partnership audit cases under the Bipartisan Budget Act of 2015 (BBA). The BBA was designed to centralize audits, adjustments, and tax collections for partnerships in taxable years beginning after 2017, and to increase compliance while easing administrative burdens.
Mac identified three key areas where taxpayers and their advisors are most likely to run into administrative difficulties under the BBA regime: administrative adjustment requests, partnerships that make push-out elections, and state and local reporting of federal adjustments under BBA framework.
Administrative adjustment requests (AAR) under the BBA give partnerships the ability to correct errors or change partnership-related items, without needing to file an amended return. However, partnerships cannot file an AAR after the IRS issues a notice of administrative proceeding (NAP). Mac outlines scenarios in which this can be unfair for taxpayers under the centralized audit regime.
Push-out elections are another area where taxpayers can be in a bind under BBA audit regime rules. If the IRS issues a Notice of Federal Partnership Adjustment (FPA) that asserts an imputed underpayment, the partnership's representative can elect to push out the partnership adjustments to the partners. The IRS infrastructure around push-out election forms can be glitch-ridden and result in numerous delays.
Federal BBA adjustments may result in additional reporting requirements at the state and local (SALT) level. The intergovernmental Multistate Tax Commission issued a model statute for SALT treatment: the Model Uniform Statute for Reporting Adjustments to Federal Taxable Income and Federal Partnership Audit Adjustments (MTC Statute). The MTC Statute contains model rules for reporting federal partnership adjustments at the state level when they result from an AAR or BBA partnership audit.
Mac discusses the MTC Statute and states that have adopted the MTC model.
You can learn more about the intricacies of these common issues in BBA partnership audits by reading the complete article here.
About Mac
Mac focuses his practice on U.S. tax litigation matters and has broad experience in transactional work and international tax planning.