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Audit Partnership Bill is Bad News for Multifamily Investment

Legislation to streamline the audits of partnerships is currently being considered as a potential offset for future tax legislation. The “Partnership Audit Simplification Act of 2015,” introduced in the House by Representatives Jim Renacci (R-OH) and Ron Kind (D-WI) in June, would leave real estate partners jointly and severally liable for a partnership’s tax deficiencies. The resulting risk of large, unexpected tax payments and penalties would significantly decrease the attractiveness of investments in real estate partnerships, including those that dominate the multifamily industry.

NAA/NMHC sent Representatives Renacci and Kind a comment letter this week expressing our concerns about the legislation.  

This new bill attempts to collect additional tax revenue by increasing the audit rates of large partnerships and putting them on par with stock-issuing C corporations. The bill would also simplify audit procedures in order to help lessen the burden of increased audits. 

Under current law, the IRS must collect a tax deficiency from each individual investor in a partnership. But the bill would require partnerships to act through a designated partner representative. 

All tax adjustments resulting from an audit would then be made at the partnership level in the year in which the adjustments are finalized – not the tax year reviewed as part of the audit. This would eliminate the need for partnerships to distribute amended K-1s to partners, as well as the need for those partners to file amended returns. 

Notably, the bill would allow partnerships with 100 or fewer partners to opt out of its requirements. But there would be no opt out provision if a partnership or REIT is an investor in a partnership. The legislation would take effect for taxable years beginning after 2018 and raise about $10 billion. Although it’s not currently set to move in a specific tax bill, it’s possible that the measure could be added to a future tax bill.

NAA/NMHC are working to educate members of Congress about the negative impact the proposal would have on multifamily investment.

Provided by NMHC as part of the NAA/NMHC Joint Legislative Program

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