gray line

News & Publications

blue line
News & Publications >> Press & Media >> Practitioners Suggest Options for Debt Issues in Audit Regime

Practitioners Suggest Options for Debt Issues in Audit Regime

Kate Kraus in Tax Notes

Tax Notes (January 14, 2019) The treatment of mischaracterized debt under the partnership audit rules has stirred anxiety among some practitioners, but that doesn’t mean taxpayers are without options on how to deal with the fallout. The audit regime allows partnerships affected by the mischaracterization of debt to seek a modification at the entity level or push out those adjustments to their partners, but both options have drawbacks, according to practitioners. The issue is that under final rules (T.D. 9844) implementing the centralized audit regime, mischaracterizing debt as recourse versus nonrecourse could end up creating an entity-level tax on the full amount of the mischaracterization, even if the adjustment didn’t affect the amount of liability allocated to each partner, Kate Kraus of Allen Matkins Leck Gamble Mallory & Natsis LLP told Tax Notes.