WICPA and DOR Collaborate on Legislation re: Audits of Pass-through Entities
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By James D. Brandenburg, CPA, MST
ax practitioners and the Wisconsin Department of Revenue (DOR) are often on opposite sides of a tax matter or dispute. Each is trying to resolve the matter, but from a different perspective. Be that as it may, the two groups frequently work together to address current tax issues. Individuals from the WICPA and the DOR recently teamed up to work on issues impacting Wisconsin taxpayers, tax practitioners and the DOR.
Background
Wisconsin
Federal The centralized audit regime for partnerships was established in the Bipartisan Budget Act of 2015 (BBA). The BBA changes were effective for taxable years after Dec. 31, 2017. The Internal Revenue Service (IRS) implemented new partnership audit procedures as described in the BBA. The new procedures allow the IRS to assess and collect tax at the entity level; thus, the partnership would pay the tax assessment on behalf of its partners. The new procedures are designed to reduce the administrative burdens of audits on taxpayers, tax practitioners and the IRS. This is especially the case with audits of larger partnerships. Throughout the audit, the IRS deals with the “partnership representative,” or designated individual who makes decisions on behalf of the partnership. The partnership could be assessed with additional tax at the entity level, but it also has the option to push out the adjustments and amounts to the “reviewed-year” partners. While the BBA may eventually reduce administrative burdens on partnership audits, there are still many issues and complexities to understand during these initial years.
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On Balance
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Individuals from the WICPA and the DOR recently teamed up to work on issues impacting Wisconsin taxpayers, tax practitioners and the DOR.
March | April 2022
Many DOR audits are performed on pass-through entities that have many owners. In addition, there are tiered entity structures that require adjustments to be made to multiple tax returns before tax can be assessed and collected. Under current law in Wisconsin, the provisions for statutes of limitations, assessments, appeals, etc. require the DOR to administer the audit of a pass-through entity by contacting each separate member and, often, indirect members of the entity. This creates a significant amount of inefficiency and complication for taxpayers, tax practitioners and the DOR.
States, including Wisconsin, explore BBA Following the enactment of the BBA, states began exploring how they might adopt similar provisions at the state level. Each state’s tax laws are different, and each state has its own legislative process to enact changes. So it often takes several years for a state to assess what changes it will make (if any) in response to federal changes and what specific changes would apply in that state.
wicpa.org
