In a letter submitted to the Multistate Tax Commission, the American Institute of CPAs is urging the MTC to convert its model provisions into a model act rather than relying on the states to issue administrative rules.
The letter recommends comprehensive legislation, particularly the implementation of Anti-Abuse Rules, and legislative review of existing statutes or policies that may need to be amended or repealed in their entirety. The model provisions are likely to be adopted by many states, affecting a large number of taxpayers.
The model provisions combine previously circulated MTC draft model provisions and recommendations for applying state sourcing rules to:
- Distributive share income of tiered and corporate partners;
- Guaranteed payments to individuals for services; and
- Income of investment partnerships.
The AICPA offered two sets of recommendations for the model provisions. The first two general recommendations were previously submitted in AICPA comment letters and remain foundational for state tax sourcing of partnership income:
- Apply the unitary business principle to partnership income sourcing
- Include the decision in Rawat v. Comm’r with section 751 in the model provisions
The letter also offered specific recommendations for the model provisions:
- “Before Reviewing the Draft Provisions”
- Replace the language regarding “Application of the unitary business principle to partnerships is unclear”
- Replace the language regarding “As with partnership taxation generally, information reporting is essential”
- “Sourcing of Partnership Income by Tiered and Corporate Partners”
- Modify “Part I: Definitions of Terms”
- Modify “Part II: Conformity to Federal Tax Rules, Including Internal Revenue Code (IRC) Subchapter K”
- Modify the language regarding “Conformity to Federal Tax Rules, Including IRC Subchapter K”
- Modify “Part III: Obligations of Partnerships to File Information Returns and Report Information”
- Limit the requirement to gather and report overly broad partner information
- Address throwback sales in partnership information reporting
- Modify “Part IV: Sourcing of Partnership Income and Items
- Allow reasonable methods for sourcing partnership income and items
- Clarify the applicable sourcing rules for partnership income
- “Sourcing of Guaranteed Payments for Services and Additional Credit for Taxes Paid to Other States”
- Modify “Part I: State Sourcing and Taxation of Certain Guaranteed Payments”
- Avoid double counting of guaranteed payments
- Modify “Part I: State Sourcing and Taxation of Certain Guaranteed Payments”
“The AICPA’s key recommendations include limiting overly broad partner information reporting requirements and permitting reasonable methods for sourcing partnership income and items,” said Ning Yim, Senior Manager, AICPA Tax Policy & Advocacy. “The goal of those recommendations is to reduce unnecessary compliance and administrative burdens while improving consistency for practitioners and taxpayers.”
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Tags: AICPA, mtc, multi state tax commission, salt, state income taxes, Taxes
