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Groundhog Day Exclusive: Flurry of Partnership Tax Audit Regs Sends Groundhog Back To Hutch. Says He's Not Coming Out!

Gary M. Harden
2/2/18

    The regulatory freeze appears to be officially over! It's time for all good tax accountants and tax lawyers to curl up in their hutches and study yesterday's 54 pages on Centralized Audit Tax Attribute Allocations, with today's 22 new pages on Payment. Add these to Regulations on Electing In (subtitled the "Hotel California Effect," you can never leave); the once-frozen long-since thawed 277 pages of Prop Regs covering the basics; December 19th Prop Regs on how adjust Centralized Audit adjustments, and how to "Push Out" of there; and the New Year's Resolution January 2nd Final Regs on Electing Out, adding new ways to disqualify a partner, and my favorite short story on "How to Count K-1s."

    Not to be outdone by Partnership Audit, necessary guidance regarding the Tax Cuts and Jobs Act is even more compelling. The AICPA's letter to Treasury at the end of last month sent a top of mind list of items three pages long. Treasury also awaits the aftermath of a Technical Corrections Bill, fixing Congress's "faux paws" (sticking with the groundhog theme) and enacting provisions agreed to by the Conference Committee that never made it into the Final Act.

    All of this comes at the beginning of what we refer to as "The Tax Season." Accountants also will find time to meet with clients, compile/review year-end financial statements and deal with those pesky 2017 tax returns. My salvation: I'm a transactional tax and controversy attorney. I don't prepare returns. But in a pinch I have drafted disclosure statements and opinioned off some issues. So while others are working on compliance, I am working on changes to transactional agreements and strategy, that are always driven by change.

    For example, my bare bones LLC Agreement and Operating Agreement language on Partnership Audit was five pages long before December. In addition to reflecting three new sets of Regulations, we will be adding Flow Through Deduction language on allocating W-2 Wages and Qualified Property. Hibernation through this storm of Regulations could open hunting season on groundhogs, waking up with disappointed clients taxed on the underpayments of others, and some flow through owners disqualified for a 20% deduction where the entity has enough W-2 Wages and Qualifying Property to cover.

    Should you have any questions concerning the recent tax reform, please contact Gary M. Harden.

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    Disclaimer:  The article in this publication has been prepared by Eastman & Smith Ltd. for informational purposes only and should not be considered legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney/client relationship.

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