We Need Partnership Tax Reform
Adapted from a letter to the editor of Tax Notes on Aug. 7, 2023
Last week, the General Accounting Office issued a report describing the poor audit performance of the IRS in the auditing of what are referred to in the report as “large partnerships” ($100 Million or more of assets and 100 or more partners).[1]
In a statement on this report,[2] Senator Wyden, Chair of the Senate Finance Committee, stated:
“Large partnerships are the Wild West of tax compliance….The business structures are extraordinarily complicated, the tax rules that apply to them are riddled with loopholes, and the wealthy investors and corporations who use them to get out of paying a fair share know that the IRS has zero ability to crack down. Congress never intended for large partnerships to become the granddaddy [sic] of all tax loopholes.”
Slightly short of two years ago, the senator introduced a discussion draft of new partnership tax reform proposals.[3] Contemporaneously with the issuance of that draft, I authored a series of articles and letters to the editor in Tax Notes about partnership tax reform.[4] These articles and letters were subsequently republished as a combined document in SSRN.[5]
The prior articles and letters first provide background on the problem: the desperate need for partnership tax reform. The material then sets forth specific proposals for partnership tax reform, as well as an analysis of the Wyden Partnership Proposals. Several additional abuses in need of correction were also addressed.
The goal of the Wyden Partnership Proposals was and still is to reduce the tax gap, reduce the present law opportunities for abuse and provide a workable system of taxation dealing with partnerships and partners.
When the time and political climate is right, I believe that the Wyden Partnership Proposals will make another visit to the public for review and comment. Unlike the situation that occurred the last time where there were almost no constructive comments on the proposals, this time, when it comes, will hopefully be different. Just saying “this stinks, go away” will not do any good toward the goal of improving the federal tax system of taxing partnerships and partners.
[1] See GAO Report 23–106020, July 27, 2023.
[2] See Wyden Statement On GAO Report.
[3] See Wyden Partnership Reform Proposals (the “Wyden Partnership Proposals”).
[4] See Tax Notes Federal, Volume 178, Jan. 16, 2023; Tax Notes Federal, Volume 170, Mar. 29, 2021; Tax Notes Federal, Volume 173, Oct. 25, 2021; Tax Notes Federal, Volume 173, Nov. 1, 2021; Tax Notes Federal, Volume 173, Dec. 20, 2021; Tax Notes Federal, Volume 174, Feb. 14, 2022; Tax Notes Federal, Volume 177, Nov. 7, 2022.
[5] See Monte A. Jackel, “Partnership Tax Reform: Combined Tax Notes Material” February 13, 2023, available at SSRN: https://ssrn.com/abstract=4357213 or http://dx.doi.org/10.2139/ssrn.4357213.
