Recent Funding Package Tax Provisions

Recently Enacted Federal Government Funding Package Contains Several Tax Provisions

On March 23, the President signed into law the Consolidated Appropriations Act, a $1.3 trillion spending act funding the federal government through September 30. The Act contains technical corrections regarding the centralized partnership audit rules, provides increased funding for and reforms to the Internal Revenue Service (IRS), and corrects a portion of the Tax Cuts and Jobs Act (TCJA) that gives farmers a tax break for selling crops to cooperatives but not to private or investor-owned grain handlers.

Partnership Audit Rules’ Scope Significantly Broadened

The centralized partnership audit rules broadened the IRS Auditor’s scope by eliminating references to adjustments to partnership income, gain, loss, deduction, or credit. Instead the rules reference a “partnership-related item,” now defined as any item or amount with respect to the partnership relevant in determining the income tax liability of any person. This includes an imputed underpayment and an item or amount relating to any transaction with, basis in, or liability of, the partnership.

Partnership Audit Rules Clarify Imputed Underpayment Netting

The Act also addresses the determination of imputed underpayments. Specifically, the technical correction clarifies the manner of netting items in computing the partnership’s imputed underpayment.

The technical corrections to the partnership audit rules also clarify the procedures that allow reviewed-year partners to take adjustments into account so that the partnership’s imputed underpayment can be determined without regard to those partners’ adjustments. Finally, the Act creates as an alternative procedure to filing amended returns (“pull-in procedure”). This procedure reduces the partnership’s imputed underpayment to the extent that direct and indirect partners adjust their tax attributes and pay the tax as if they filed amended tax returns.

The IRS Gets a Raise

The Act also provides $196 million in increased funding to the IRS, and a myriad of reforms to the agency, including:

• The implementation of a required employee training program.
• Required institution and enforcement by the agency of “policies and procedures that will safeguard confidentiality of taxpayer information and protect against identity theft.”
• Increasing facilities and staff for the IRS help line.

Grain Glitch Corrected

The Act only changes one provision in the TCJA, the so-called “grain glitch.” The former statute provided farmers a tax-advantage for selling crops to farmer-owned cooperatives but not for sales to private or investor-owned grain handlers. The Act addressed this imbalance by repealing the special deduction for qualified cooperative dividends.

For more information on these provisions please contact a CPA or other tax professional.