10 minute read
WICPA & DOR collaborate on pass-through entity audits
WICPA and DOR Collaborate on Legislation
re: Audits of Pass-through Entities
By James D. Brandenburg, CPA, MST
Tax 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
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. Wisconsin 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.
Jim Brandenburg testifies to members of the Senate Committee on Financial Institutions and Revenue.
The state of Wisconsin needed to look at the federal BBA and determine if Wisconsin should adopt similar legislation. If so, what similarities and differences would it establish in its audits? Further, how might these changes compare with what other states are doing? How might these changes impact Wisconsin taxpayers? These questions and many others needed to be explored. Two years ago, members of the WICPA and associates of the DOR began examining how audits of pass-through entities should be handled in Wisconsin. Taxpayers, tax practitioners and the DOR all had concerns they wanted considered. This task force explored many aspects of making changes for Wisconsin. The group met virtually numerous times to address assorted topics, and there was honest communication among all involved in the process. It was a collaborative effort, with each side offering suggestions on what to change and listening to responses from the other side. At times, the process moved slowly, as there were many issues and details to address. While the group did not always agree completely, it was encouraging to see the respect and professionalism participants contributed to the process and the collaboration to reach the final proposed legislation. It was a group effort, and the group should be commended for its diligence. Members of the task force from the DOR’s Division of Income, Sales & Excise Tax were as follows:
From the Office of Technical Services • Nate Weber • Craig Kvammen • Joe Wasicak
From the Audit Bureau • Wendy Miller • Jayne Kulberg • Kurt Schirmer
DOR Secretary Peter Barca was also instrumental in the process.
WICPA task force members were as follows: • Ruth Kallio-Mielke, Deloitte & Touche LLP • William Nolan, Ernst & Young LLP • Linda Feirn, Wipfli LLP • Bradley Wilhelmson, KPMG LLP • Donna Scaffidi, Baker Tilly • Jim Brandenburg, Sikich LLP
Michael Goller, JD, and Lucien Beaudry, CPA, JD, also contributed. WICPA President & CEO Tammy Hofstede was responsible for initiating the collaboration and the process from the start and should be applauded for her efforts. The following members of the Wisconsin legislature introduced and sponsored the legislation of AB816/SB794: State Senators Dale Kooyenga, CPA, and Howard Marklein, CPA, and State Representatives Robert Wittke, David Armstrong, Robert Brooks and Daniel Knodl. They, too, should be commended for their key role in the process.
Proposed new Wisconsin law for audits of pass-through entities
The provisions in this Wisconsin tax bill permit administrative functions of a DOR audit of a pass-through entity to be centralized at the entity level while still maintaining the pass-through status of the entity. Further, some of the key provisions in the bill are as follows: • Designates a “state representative” who does not have to be the same representative for federal tax purposes and who may delegate responsibilities to an agent, such as an employee, the entity or a power of attorney • Allows the DOR to assess and collect additional tax from a pass-through entity on income otherwise reportable by its pass-through members • Provides for an election for pass-through entities with 25 or fewer members to require the DOR to assess the members directly rather than through the pass-through entity • Directs the secretary of the Department of Administration for Wisconsin to refund to a pass-through entity the portion of an overpayment paid by the pass-through entity and not by the entity’s pass-through members • Makes an assessment to reduce a tax credit to a passthrough entity if the pass-through entity previously computed the tax credit and reported the tax credit to its pass-through members • Makes an adjustment to increase a tax credit to offset additional tax assessed to a pass-through entity In addition, if the DOR determines the liability may be owed by more than one pass-through member of a pass-through entity, the DOR may assess any pass-through member of the pass-through entity for their allocated portion of additional tax otherwise due.
Next steps
We anticipate this bill (SB794/AB816) to be signed into law in the coming weeks after this publication is printed. WICPA members Ruth Kallio-Mielke and Jim Brandenburg testified at Senate and Assembly committee hearings, with assistance from Tammy Hofstede. DOR Secretary Peter Barca also testified in support of the bill and commended the collaboration with the WICPA. While few look forward to tax audits, steps taken by the WICPA and the DOR should make the process less burdensome in the future. The collaborative efforts of all involved in this process should be commended.
Ruth Kallio-Mielke testifies to members of the Assembly Committee on Ways and Means.
Jim Brandenburg, Rep. Robert Wittke, Tammy Hofstede and DOR Secretary Peter Barca pose for a photo after testifying to members of the Senate Committee on Financial Institutions and Revenue.
James D. Brandenburg, CPA, MST, is a tax partner with Sikich LLP, Brookfield. Contact him at 262-754-9400 or jim.brandenburg@sikich.com.
2021 Donors!
Your donation to the WICPA Educational Foundation sends a clear message that you believe in the future of the accounting profession. We appreciate your commitment and THANK YOU FOR YOUR SUPPORT.
Michelle M. Adams William R. Ahlstrom Karl T. Ahonen Michael D. Akers Margaret Albrecht John C. Andres Laura J. Arnow Harold B. Averkamp Douglas J. Baker Charles R. Barney Keith H. Baumgartner Donald J. Becker William C. Beisenstein David A. Benner Michael J. Berns Sr. Lawrence C. Bittner Karla E. Blair Jennifer M. Bogli James J. Bolgert Barry E. Borchert Richard J. Boulay James D. Brandenburg Suanne M. Cain David G. Chapman Stephan J. Chevalier Christopher M. Cholka Timothy L. Christen Edward H. Cichurski Michela J. Cobb William B. Coleman Dorothy A. Conduah Cheryl A. Connor Robert E. Cook Jeffrey A. Davis Curtis M. Day Barbara A. DeBaere-Poppy Gerald E. Denor Suzanne M. Denzine Patti L. Desrosier Jeff Dewane Linda S. Dicks Richard A. Dieffenbach Peter J. Doemel Michael D. Donahue Sean P. Donahue Lynn M. Dorner Benjamin E. Douglas David M. Duehr Dale L. Ebert Kathy-Ann Edwards Kathryn Erickson Gary A. Ertel Deidre A. Erwin Lucas Espinosa Mark O. Faanes Jennifer Fahey Fred G. Farris Lisa U. Fernandez Michael O. Festge Delores M. Fischer James H. Fischer Patrick M. Fischer David C. Fohr Robert J. Foulks Jr. Spencer L. Francis Jeffrey A. Frank Paul J. Frantz Charles F. Freiberg Ann B. Freund Michael E. Friedman Anthony J. Fuerst Michael D. Gabron Jon C. Gage Richard K. Gaumer David M. Geertsen Sharon A. Geertsen W. Richard Gerhard John A. Gerold Charles E. Gierl Charles H. Gietzel Alan J. Giuffre Robert C. Goldie Kathryn L. Golsteyn William D. Goodman Lisa M. Gottsacker Michael H. Grams Robert C. Graveen Kurt E. Gresens William P. Grimmer Randall S. Grobe Douglas W. Haag Michael J. Hablewitz David A. Hagen John A. Haider Jean M. Hansen Ryan J. Hanson Theodore E. Hart Scott R. Haumersen Katherine L. Hauser Kristin Heelan Daniel J. Heerey Dennis J. Heim William G. Heinrich Keith D. Helm Glen V. Helmbrecht John M. Hicks Patrick G. Hoffert Kathleen J. Hoffman Allyson J. Hofstede Tammy J. Hofstede Steven A. Hollmann Katy Hook Jessica M. Horning Wayne N. Huberty Patricia R. Huettl Thomas Iannacone Joseph P. Imhoff George S. Jaloviar Bradley J. Jansen Maria Jarvi Jeffrey A. Jaschinski David R. Johnsen David M. Johnson Elizabeth R. Johnson Renee M. Johnson Robert W. Jonet Ruth A. Kallio-Mielke David A. Kamke Carl F. Kantner Lawrence M. Kean John R. Kellerman Paul F. Kersten Louis J. Kisielewski Kenneth D. Klemm Fr. Kurtis J. Klismet William L. Komisar Michael W. Konecny Thomas L. Koops Thomas H. Koplin Rosanna L. Kopling Thomas G. Kortas Nicole C. Kraus Jason R. Krentz Glenn R. Krieg Bernard Kristal John A. Kuhn Mary L. La Macchia Gregory P. LaFreniere John G. Lauber David P. Lauer Jack G. Lee III Charlotte J. Liddicoat Ronald A. Ligman Terri M. Lillesand Ariel M. Lorge Karen P. Loth Patrick R. Lyons Bradford E. Macfarlane Muriel L. Marx Hoffmann Lucretia S. Mattson Robert T. McGrane Krista M. McMasters Donald M. Meier William P. Merrick Seth R. Mickelson Thomas L. Mickelson Darci L. Middaugh Howard C. Miller James P. Miller Jay A. Momberg Jean M. Mosher Chad S. Neumann Terence A. Niewolny Gary J. Nilles William C. O’Loughlin Wayne E. Olsen Danica E. Olson Jade W. Olson Gerald A. Ontko Andrew P. Osterberg Dana S. Outhouse David G. Page Thomas J. Pamperin Sandra M. Peterson Ray Petkovsek John W. Pierquet Terrie A. Pohjola Thomas J. Polacek Robert R. Porter James L. Possin Daren J. Powers Gerald E. Powers Steven A. Pullara Brian H. Pulvermacher Keith A. Radke Thomas G. Ragatz Richard A. Reale II Ralph R. Redlin Glenn E. Reinl Michael J. Roberts Joseph A. Rock Connie L. Roedel Douglas W. Rogers Michael R. Ronk Kenneth P. Rose Henry A. Rueden Jose E. Saenz John G. Sawtell Thomas A. Scheidegger David K. Schlichting Eli H. Schmukler Robert A. Schneider Harold L. Schroeder Vernon R. Schroth Jayna K. Schultz Richard B. Schultz Frank R. Scott Steven B. Seymour Dan E. Smith Jane M. Somers Katy L. Sommer Richard W. Spencer Patricia H. Spragg Alex G. Stewart Thomas R. Stolper Terry T. Strittmater Mary E. Stroud Tim D. Sweemer William S. Tatman Edward M. Terry Angela C. Thomas Martin C. Thomas Dennis F. Tomorsky Lawrence A. Totsky Kim L. Tredinnick Debra M. Trost James F. Tullis Marlene Udovich Carol A. Valley Gerald R. Van De Kreeke Jon G. Van Drisse Paul G. Van Ess Jim Van Pelt Denise A. Vandenbush Susan G. Vetrovsky- Goldstone Lynn T. Visser-Young James J. Wagner Roberta A. Ward Paula A. Wegner Thomas H. Weingarten Joseph P. Wenzler Lori A. Wermuth Sarah R. Whyte Thomas G. Wieland George R. Wiesner Susan M. Wilcox Clifford A. Williams Dennis N. Winkler Dennis G. Wojahn James W. Woloszyk Adam J. Woznicki Michael S. Yankunas Stephen J. Ziegler Michael A. Zongolowicz
Special thanks to donating organizations:
Deloitte & Touche LLP Ernst & Young LLP Grant Thornton LLP KPMG LLP PwC Wipfli Foundation Inc.
