Technical terminations not terminated in certain states

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February 2019

Overview

The 2017 tax reform act repealed Internal Revenue Code Section 708(b)(1)(B), otherwise referred to as the partnership technical termination provision. Under the revised federal law, a sale or exchange of 50% or greater interest in a partnership does not terminate the partnership nor end the partnership’s taxable year. Thus, no federal short period return is due. However, not all states have conformed to the federal changes. Consequently, some partnerships may experience a state-only technical termination necessitating state short period returns and resulting in additional compliance burdens and potential penalty and tax exposure for both the partnership and its partners.

The takeaway

Beginning with tax year 2018, taxpayers will need to be cognizant of any state-only technical termination filing requirements and state considerations. Taxpayers should additionally monitor any forthcoming guidance from state taxing authorities related to state technical termination filing requirements along with monitoring any state conformity measures taken during 2019 state legislative sessions.

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Peter Michalowski

Peter Michalowski

State and Local Tax Leader, PwC US

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