The AICPA has submitted feedback on sourcing rules for partnership income to the MTC, addressing issues raised in response to previous correspondence and the latest draft of the MTC’s white paper on state tax sourcing of partnership income.

Adjustments suggested by the AICPA focus on partnership structures, special allocations, and related-party transactions in the context of state tax, raising concerns about the impact on states’ ability to tax partnership income and source such income.

Specific points include revising how different states approach sourcing multistate business income and adding language regarding differing sourcing rules for non-resident or corporate partners.

The AICPA letter recommends clarification on why sourcing guidance is applied at the partner level and suggests adding a recent court decision related to determining a partner’s gain from disposing of a partnership interest.

On related-party transactions, AICPA suggests an alternative approach should apply only if there is evidence of tax avoidance, requesting additional guidance for instances where partners act outside their official capacities.

Further recommendations include enhancing the framework to determine if a taxpayer operates a trade or business before assessing if it constitutes a unitary business, along with removing a phrase related to blended apportionment from the white paper.

AICPA Tax Policy & Advocacy senior manager Ning Yim highlights the complexity faced by taxpayers and practitioners with partnership structures, special allocations, and related-party transactions, offering additional recommendations on the MTC white paper approach.

Read more at Yahoo Finance: AICPA comments to MTC on sourcing rules for partnership income