Bradley attorney Bruce Ely was quoted in Tax Notes about the new IRS proposed rule that did not address the SALT cap workarounds adopted by five states involving entity-level state tax on passthroughs and offsetting state credits for the entity’s members. Some experts on the state taxation of passthroughs are interpreting the continued silence as a green light for more states to implement the approach.
Ely said he’s “not sure if it’s good news or bad news that Treasury again failed to address the validity” of the entity-level taxes enacted as part of SALT cap workarounds.
“It’s likely that Treasury’s failure or refusal to address the issue will only spur other states to enact these taxes next spring,” Ely said. He added that the only question is whether new entity-level state taxes will be mandatory, like Connecticut’s, or elective, like those adopted by the other four states.
“I’d certainly argue that silence means acquiescence on the part of the federal government,” Ely said. “It would be blatantly unfair for Treasury to issue yet another set of proposed regulations or some sort of other guidance, sometime next year, challenging the validity of these taxes more than two or three years after the fact. That would be unconscionable."
The complete article, “IRS Silent on Passthrough Workarounds in SALT Cap Proposed Rule,” first appeared in Tax Notes on December 13, 2019.