The American Institute of CPAs sent a comment letter to the Department of the Treasury and the Internal Revenue Service objecting to their guidance regarding change of basis transactions involving partnerships and related parties.

Treasury and the IRS issued a set of guidance in June targeting related parties and partnerships, which structure transactions to take advantage of the basic adjustment provisions of Subchapter K. The AICPA believes that the set of guidance exceeded its intended scope by including actual and substantial transactions, this would be considered a reportable transaction causing undue hardship to taxpayers, particularly due to the retroactive nature of the proposed rules.

Additionally, the AICPA highlighted the Supreme Court’s decision decision in June in the Loper Bright case that overturned the doctrine of “Chevron deference,” meaning that courts now interpret laws without assuming agencies’ interpretations are correct. The AICPA is asking Treasury and the IRS to reconsider the guidance program, questioning whether it represents the best interpretation of existing statutes.

The AICPA recommended in an Oct. 3 comment letter that the final rule eliminate retroactive application of the proposed rules and clarify that they apply prospectively to participating parties and significant advisors. Additionally, the AICPA believes that the disclosure requirements under the proposed regulations should only apply in the year of the transaction of interest.

The Institute also wants the final regulations to significantly narrow the scope of the proposed regulations to cover only “carefully structured” transactions that “exploit the basic mechanical adjustment provisions of Subchapter K.” In this way, the final regulations would exclude the common transactions and normal basis adjustments considered in the proposed rules as written.

The AICPA also asked Treasury and the IRS to significantly increase the proposed $5 million threshold, saying the final regulations should reflect a threshold of at least $50 million. He believes that the threshold should be applied transaction by transaction and seek to be recognized by all parties.

Finally, the AICPA requested that Treasury and the IRS amend the definition of related parties in interest distribution transactions to reflect that in addition to being related to each other, related partners must also hold 80 % or more of the capital of the profits of the interests of the partnership. .

“Our recommendations would eliminate retroactivity of the rules, significantly increase the $5 million transaction threshold and exclude certain types of transactions from being subject to the rules,” said Kristin Esposito, director of tax policy and advocacy for the AICPA, in a statement released Monday. “This would significantly ease the administrative burden on our members.”