Page 229 - The TEFRA Partnership Audit Rules Repeal:

ALI CLE Live Video Webcast / “The TEFRA Partnership Audit Rules Repeal: Partnership and Partner Impacts” June 7, 2016, Jerald David August and Terence Floyd Cuff
position has met the more-likely-than-not recognition threshold shall consider the facts, circumstances, and information available at the reporting date.”
A prior recognized position must be charged or reduced by the probable point at which the tax position will be resolved between the taxpayer and the Internal Revenue Service or applicable authority, as will be explained below. Correlatively, if the tax position taken on a tax return is not more likely than not correct, it cannot be recognized for GAAP purposes and the underlying amount of tax, interest, and possible penalties must be booked as a deferred tax liability for the “uncertain item.” The liability may be eliminated when a tax position that was originally derecognized for GAAP purposes is favorably resolved, e.g., the running of the applicable statute of limitations for the return year in which the tax position was reported. FIN 48 applies to all United States income tax, as well as foreign, state, and local taxes (including franchise taxes) based on income. It does not apply with respect to sales and use taxes, value- added taxes, and other taxes not based on income.
f. Application of ASC 740-10 (FIN 48) to Imputed Underpayments of a Partnership for Reviewed Years.
The general tax rule, commencing for partnership taxable years commencing after December 31, 2017 (unless an early opt-in election is made) is that the imputed underpayment is a partnership liability. This poses the question of how will ASC 740-10 will apply to potential tax assessments against a partnership, even where the partnership has the flexibility to push- down the liability to its partners. Query: Will tax reserves now need to be established for partnership operations?
The question of FIN 48 could prove important for many partnerships that have GAAP financial statements and that take uncertain tax positions. The disclosure of an uncertain tax position on financial statements may be a “red flag” to the Internal Revenue Service. Internal Revenue Service auditors may have limited background in the substantive rules of subchapter K, but they should be able to read tax disclosures in the financial statements. A reserve for uncertain tax positions also will affect the partnership’s earnings and its balance sheet. These disclosures may have an adverse effect on the perception of partnership investors.
Many partnerships have partnership allocations of profits and losses or credits that are uncertain to be sustained under the tax law. Partnerships may have been aggressive in their application of Section 704(c)(1)(A). Other partnerships may have taken other uncertain tax positions.
© Terence Floyd Cuff and Jerald David August, 2016
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