April 10th, 2017

This post is the third of a Three Part Series of K&F Business and International Tax Developments Posts on the Proposed Regulations to the New Partnership Audit Regime which legislation is due to go into effect for all unincorporated entities treated as partnerships, in general, for taxable years beginning after December 31, 2017. Part One, which was posted on February 17, 2017, summarized the legislation which enacted the new partnership audit rules as part of The Bipartisan Budget Act of 2015, Pub. L. No. 114-74, Act §1101 (the “Budget Act”) which was signed into law on November 2, 2015, (as modified by Protecting Americans from Tax Hikes Act of 2015, Pub. L. No. 114-113 (the “PATH Act”)). The Proposed Regulations were issued on January 18, 2017 (REG-136118-15).

In a Memorandum from Reince Priebus, Assistant to the President and Chief of Staff, issued on January 20, 2017 to all Heads of Executive Departments and Agencies on behalf of President Trump, a regulatory freeze on the issuance of new regulations was announced to take effect immediately. In particular, proposed regulations that had neither been published in the federal register or had been waiting for their effective date, were immediately withdrawn for review and approval of the department or agency head appointed or designated by the President. Therefore, the Proposed Regulations to the partnership audit rules issued just two days earlier, were technically withdrawn on January, 20, 2017. See “White House Memo Puts Freeze on All New and Pending Regs”, Tax Notes, Jan. 20, 2017. In a recent announcement made on March 3 by Ms. Hodes, attorney-adviser, Treasury Office of Tax Legislative Counsel, in addressing the Federal Bar Association Section on Taxation, practitioners were urged not to assume the IRS will be unprepared for January 1, 2018, the deadline for the commencement of the new partnership audit regime.