Accounting
Partnerships get options for fixing tax errors
Published
4 months agoon

The Internal Revenue Service has been
In October, a
The centralized audit regime is probably the best known change for partnerships under the BBA, but there are others that partners should keep in mind when it comes to their tax returns.
In general, a partnership that’s subject to the BBA’s centralized partnership audit regime can’t file amended returns or amended Schedule K-1s, but instead needs to file an administrative adjustment request, or AAR, to make a change to a previously filed partnership return.
“In order to correct errors in partnership returns, the Bipartisan Budget Act of 2015 changed the rules,” said Rochelle Hodes, Washington National Tax Office principal at the Top 25 Firm Crowe LLP. “There are no more amended returns. Everybody has to use the AAR process, except those few taxpayers who have elected out of the BBA regime. Election out of the regime is very limited. Tiered partnerships can’t elect out. Partnerships with trusts and partners with disregarded entities can’t elect out. Partnerships who have S corps with partners in some cases can elect out. But for the most part, unless you have a partnership that has all individuals or all C corporations as partners, they’re going to be covered by BBA, and they’re not going to be able to do amended returns anymore, so they’re going to have to use this AAR process for correction of errors.”
The AAR process may be unfamiliar to many firms. “Even though the rules have been in effect generally for partnership taxable years beginning on or after Jan. 1, 2018, a lot of taxpayers and practitioners are only now just dipping a toe into having to use these new procedures,” said Hodes. “Historically, a lot of partnerships did not amend returns, and if they did, they would send out amended returns and corrected K-1’s. Under the new process, a different set of forms gets filed and effectively the adjustment to the prior year and the tax resulting therefrom is figured on a pro forma kind of basis. You figure out how much tax difference there is when you correct the error, and then you take that tax difference and you move it up to the ‘current year.’ That’s when you pay the tax that results.”
When there’s a mistake that’s not a numeric error like an incorrect amount of income, but instead the partnership neglected to attach a form or make a Section 754 election to adjust the basis of property, then it needs to follow the new AAR process. The American Institute of CPAs has
“When nothing else is changed on the return and you just forgot to attach the statement, you have to do this more complicated AAR process to attach the statement,” said Hodes.
However, there may be help on the way. “It’s my understanding that the IRS is going to be coming out with a more streamlined process for correcting errors like that,” said Hodes. “It’s something that AICPA has been asking for for a number of years now. The AICPA calls it the AAR-EZ, like the easy form. And it’s my understanding that’s something that is close to coming out, so that should be welcomed.”
The 2015 BBA law made it easier for the IRS to audit a large complex partnership such as a private equity firm, changing the rules previously enacted under the Tax Equity and Fiscal Responsibility Act of 1982, also known as TEFRA. But the process for formulating the regulations for the centralized audit regime has taken years to play out, as lobbying groups for PE firms and hedge funds lobbied lawmakers on Capitol Hill to weaken the rules. They have options such as the “pushout election.”
“Partnerships are not taxpaying entities,” said Hodes. “Previously for the IRS to collect any tax due, generally under TEFRA, they would audit the partnership, make adjustments to items, and then the IRS had to flow those adjustments through and find taxpaying partners, and those taxpaying partners then had an opportunity to, in many cases, go to the Tax Court and challenge whether they owed the amounts or not, so the IRS didn’t get their money right away. What the BBA does is it says, look, let’s get this tax thing all set up. We’ll do a stand-in for the tax that would have been owed. We’ll do it close enough, and we’ll take all the adjustments that the IRS made, we’ll multiply it by the highest rate, which happens at this point in time to be 37%, and the partnership can pay the tax, and we’ll call it a day, and that will be much easier, so the IRS won’t have to do any of that work, and the individual partners won’t be able to challenge, and the fisc will be protected. When the BBA rules legislation was first being drafted, that’s how the rules lined up. But groups went to the Hill and said, ‘But that’s not fair, because if you take into account the individual partners’ particular circumstances, the tax that’s going to get paid is far less, and there should be a system to allow the individual partner’s circumstances to be taken into account.’ And thus, the pushout election was born.”
A partnership filing an AAR can decide whether to pay any tax attributable to taking the adjustments into account (called an imputed underpayment) or push the adjustments out to the reviewed year partners, according to an
“Under TEFRA the IRS had to flow through the adjustments to the partners, and it was a lot of work for the IRS and a lot of man hours for the IRS, and they could only do so few because of all that work,” said Hodes. “The burden has now shifted to the partnership. If you want to flow it through partnership, you and all the partners in the tiers will now have to bear that burden, and they flow through the adjustments.”
A pushout can occur in the context of an examination, an IRS audit or an AAR. “An audit is when the IRS makes adjustments,” said Hodes. “An AAR is when the partnership, on its own, makes an adjustment. And in the case of an AAR, Congress made the decision in statute and said, You know what? If those adjustments are taxpayer favorable, the partnership must push out those adjustments if you’re doing an AAR. If you’re correcting something because you didn’t give your partners enough of the good stuff, we have made the policy call in Congress that if you’re going to do it yourself, you need to send that good stuff out to the partners. In my experience, most AARs involve a pushout, and that is a big part of what’s making these AARs so complex. In many cases, an AAR is going to have both taxpayer favorable and some taxpayer unfavorable items. But so long as you have a tax favorable item, you’ve got to do the push, so why not just push everything? It is a rare circumstance where I have seen the partnership pay the [imputed underpayment] and not do a pushout.”
The IRS has made efforts to crack down on tax evasion by large partnerships, but that could change with the incoming Trump administration. On Wednesday, President-elect Trump announced that he would be
“You previously had an audit rate of partnerships of zero or quite near zero,” said Hodes. “Meanwhile, over the past 50 or 40 years, we have seen more and more assets in the economy flow through partnership structures, as opposed to corporate structures. But partnerships are complex.”
The AAR process and the pushout election made large partnership audits even more complicated for the IRS. She noted that the regulations in
“It’s a good thing to keep in mind,” said Hodes. “I had a boss who once told me that the ability to correct mistakes is the reason why pencils have erasers, and 9100 relief processes are intended to not punish people for ministerial oops’s. It’s just something to keep in mind that there are opportunities to obtain relief.”
She also pointed out that the IRS is offering extensions in many parts of the country that have been affected by natural disasters. “There were a lot of disasters in 2024, and due dates and such have been extended,” said Hodes. “When you think you might have been late, you might not have been late in filing or with payment. As you go through and look to see if you have errors, it’s important to keep in mind opportunities for relief through the disaster rules as well, if they’re applicable.”
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Accounting
Accountants tackle tariff increases after ‘Liberation Day’
Published
1 hour agoon
April 3, 2025
President Trump’s imposition of steep tariffs on countries around the world is likely to drive demand for accounting experts and consultants to help companies adjust and forecast the ever-changing percentages and terms.
On April 2, which Trump dubbed “Liberation Day,” he announced a raft of reciprocal tariffs of varying percentages on trading partners across the globe and signed an
“A lot of CFOs are thinking they are going to pass along the tariffs to their customer base, and about another half are thinking we’re going to absorb it and be more creative in other ways we can save money inside our company,” said Tom Hood, executive vice president for business engagement and growth at the AICPA & CIMA.
The AICPA & CIMA’s most recent
“CFOs in our community are telling us that, effectively, they’re looking at this a lot like what happened over COVID with a big disruption out of nowhere,” said Hood. “This one, they could see it coming. But the point is they had to immediately pivot into forecasting and projection with basically forward-looking financial analysis to help their companies, CEOs, etc., plan for what could be coming next. This is true for firms who are advising clients. They might be hired to do the planning in an outsourced way, if the company doesn’t have the finance talent inside to do that.”
The tariffs are not set in stone, and other countries are likely to continue to negotiate them with the U.S., as Canada and Mexico have been doing in recent months.
“The one thing that I think we can all count on is a certain amount of uncertainty in this process, at least for the next several months,” said Charles Clevenger, a principal at UHY Consulting who specializes in supply chain and procurement strategy. “It’s hard to tell if it’s going to go beyond that or not, but it certainly feels that way.”
Accountants will need to make sure their companies and clients stay compliant with whatever conditions are imposed by the U.S. and its trading partners. “This is a more complex tariff environment than most companies have experienced in the past, or that seems to be where we’re headed, and so ensuring compliance is really important,” said Clevenger.
Big Four firms are advising caution among their clients.
“Our point of view is we’re advising all of our clients to do a few things right out of the gate,” said Martin Fiore, EY Americas deputy vice chair of tax, during a webinar Thursday. “Model and analyze the trade flows. Look at your supply chain structures. Understand those and execute scenario planning on supply chain structures that could evolve in new environments. That is really important: the ability for companies to address the questions they’re getting from their C-suite, from their stakeholders, is critical. Every company is in a different spot according to the discussions we’ve had. We just are really emphasizing, with all the uncertainty, know your structure, know your position, have modeling put in place, so as we go through the next rounds of discussions over many months, you have an understanding of your structure.”
Scenario planning will be especially important amid all the unpredictability for companies large and small. “They’re going to be looking at all the different countries they might have supply chains in,” said Hood. “And then even the smaller midsized companies that might not be big, giant global companies, they might be supplying things to a big global company, and if they’re in part of that supply chain, they’ll be impacted through this whole cycle as well.”
Accountants will have to factor the extra tariffs and import taxes into their costs and help their clients decide whether to pass on the costs to customers, while also keeping an eye out for pricing among their competitors and suppliers.
“It’s just like accounting for any goods that you’re purchasing,” said Hood. “They often have tariffs and taxes built into them at different levels. I think the difference is these could be bigger and they could be more uncertain, because we’re not even sure they’re going to stick until you see the response by the other countries and the way this is absorbed through the market. I think we’re going through this period of deeper uncertainty. Even though they’re announced, we know that the administration has a tendency to negotiate, so I’m sure we’re going to see this thing evolve, probably in the next 30 days or whatever. The other thing our CFOs are reminding us of is that the stock market is not the economy.”
Amid the market fluctuations, companies and their accountants will need to watch closely as the rules and tariff rates fluctuate and ensure they are complying with the trading rules. “Do we have country of origin specified properly?” said Clevenger. “Are we completing the right paperwork? When there are questions, are we being responsive? Are we close to our broker? Are we monitoring our customs entries and all the basic things that we need to do? That’s more important now than it has been in the past because of this increase in complexity.”
Accounting
How to use opportunity zone tax credits in the ‘Heartland’
Published
2 hours agoon
April 3, 2025
A tax credit for investments in low-income areas could spur long-term job creation in overlooked parts of the country — with the right changes to its rules, according to a new book.
The capital gains deferral and exclusions available through the “opportunity zones” credit represent one of the few areas of the Tax Cuts and Jobs Act of 2017 that drew support from both Republicans and Democrats. The impact of the credit, though, has proven murky in terms of boosting jobs and economic growth in the roughly 7,800 Census tracts qualifying based on their rates of poverty or median family incomes.
Altering the criteria to focus the investments on “less traditional real estate and more innovation infrastructure” and ensuring they reach more places outside of New York and California could “refine the where and the what” of the credit, said Nicholas Lalla, the author of “
“I don’t want to sound naive. I know that investors leveraging opportunity zones want to make money and reduce their tax liability, but I would encourage them to do a few additional things,” Lalla said. “There are communities that need investment, that need regional and national partners to support them, and their participation can pay dividends.”
READ MORE:
A call to action
In the book, Lalla writes about how the Innovation Labs received $200 million in fundraising through public and private investments for projects like a startup unmanned aerial vehicle testing site in the Osage Nation called the Skyway36 Droneport and Technology Innovation Center. Such collaborations carry special relevance in an area like Tulsa, Oklahoma, which has a history marked by the wealth ramifications of the
“This book is a call to action for the United States to address one of society’s defining challenges: expanding opportunity by harnessing the tech industry and ensuring gains spread across demographics and geographies,” he writes. “The middle matters, the center must hold, and Heartland cities need to reinvent themselves to thrive in the innovation age. That enormous project starts at the local level, through place-based economic development, which can make an impact far faster than changing the patterns of financial markets or corporate behavior. And inclusive growth in tech must start with the reinvention of Heartland cities. That requires cities — civic ecosystems, not merely municipal governments — to undertake two changes in parallel. The first is transitioning their legacy economies to tech-based ones, and the second is shifting from a growth mindset to an inclusive-growth mindset. To accomplish both admittedly ambitious endeavors, cities must challenge local economic development orthodoxy and readjust their entire civic ecosystems for this generational project.”
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Researching the shortcomings
And that’s where an “opportunity zones 2.0” program could play an important role in supporting local tech startups, turning midsized cities into innovation engines and collaborating with philanthropic organizations or the federal, state and local governments, according to Lalla.
In
Other research suggested that opportunity-zone investments in metropolitan areas generated a 3% to 4.5% jump in employment, compared to a flat rate in rural places,
“It creates a strong incentive for taxpayers to make investments that will appreciate greatly in market value,” Tax Foundation President Emeritus Scott Hodge wrote in the analysis, “Opportunity Zones ‘Make a Good Return Greater,’ but Not for Poor Residents” shortly after the Treasury study.
“This may be the fatal flaw in opportunity zones,” he wrote. “It explains why most of the investments have been in real estate — which tends to appreciate faster than other investments — and in Census tracts that were already improving before being designated as opportunity zones.”
So far, three other research studies have concluded that the investments made little to no impact on commercial development, no clear marks on housing prices, employment and business formation and a notable boost in multifamily and other residential property,
The credit “deviates a lot from previous policies” that were much more prescriptive, Feldman said.
“It didn’t want the government to have a lot of oversay over what was going on, where the investment was going, the type of investments and things like that,” she said. “It offered uncapped tax incentives for private individual investors to invest unrealized capital gains. So this was the big innovation of OZs. It was taking the stock of unrealized capital gains that wealthy individuals, or even less wealthy individuals, had sitting, and they could roll it over into these funds that could then be invested in these opportunity zones. And there were a lot of tax breaks that came with that.”
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A ‘place-based’ strategy
The shifts that Lalla is calling for in the policy “could either be narrowing criteria for what qualifies as an opportunity zone or creating force multipliers that further incentivize investments in more places,” he said. In other words, investors may consider ideas for, say, semiconductor plants, workforce training facilities or data centers across the Midwest and in rural areas throughout the country rather than trying to build more luxury residential properties in New York and Los Angeles.
While President Donald Trump has certainly favored that type of economic development over his career in real estate, entertainment and politics, those properties could tap into other tax incentives. And a refreshed approach to opportunity zones could speak to the “real innovation and talent potential in midsized cities throughout the Heartland,” enabling a policy that experts like Lalla describe as “place-based,” he said. With any policies that mention the words “
“We can’t have cities across the country isolated from tech and innovation,” he said. “When you take a geographic lens to economic inclusion, to economic mobility, to economic prosperity, you are including communities like Tulsa, Oklahoma. You’re including communities throughout Appalachia, throughout the Midwest that have been isolated over the past 20 years.”
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Hope for the future?
In the book, Lalla compares the similar goals of opportunity zones to those of earlier policies under President Joe Biden’s administration like the Inflation Reduction Act, the CHIPS and Science Act, the American Rescue Plan and the Infrastructure Investment and Jobs Act.
“Together, these bills provided hundreds of millions of dollars in grant money for a more diverse group of cities and regions to invest in innovation infrastructure and ecosystems,” Lalla writes. “Although it will take years for these investments to bear fruit, they mark an encouraging change in federal economic development policy. I am cautiously optimistic that the incoming Trump administration will continue this trend, which has disproportionately helped the Heartland. For example, Trump’s opportunity zone program in his first term, which offered tax incentives to invest in distressed parts of the country, should be adapted and scaled to support innovation ecosystems in the Heartland. For the first time in generations, the government is taking a place-based approach to economic development, intentionally seeking to fund projects in communities historically disconnected from the nation’s innovation system and in essential industries. They’re doing so through a decidedly regional approach.”
Advisors and
“This really is a bipartisan issue. Opportunity zones won wide bipartisan approval,” he said. “Heartland cities can flourish and can do so in a complicated political environment.”
Accounting
Ramp releases tool to detect fraudulent AI-generated receipts
Published
2 hours agoon
April 3, 2025
Dave Wieseneck, an “expert in residence” at Ramp who administers the company’s own instance of Ramp, noted that faking receipts is not a new practice. What’s changed is that, with the recent
“So while it’s always been possible to create fake receipts, AI has made it super duper easy, especially OpenAI with their latest model. So I think it’s just super easy now and anybody can do it, as opposed to experts that are in the know,” he said in an interview.

Rather than try to assess the image itself, the software looks at the file’s
“When we see that these markers are present, we have really high confidence of high accuracy to identify them as potentially AI generated receipts,” said Wieseneck. “I was the first person to test it out as the person that owns our internal instance of Ramp and
While the speed at which they produced this solution may be remarkable, he said it is part of the company culture. The team, especially small pods within it, will observe a problem and stop what they’re doing to focus on a specific need. They get a group together on a Slack channel, work through the problem, code it late at night and push it out in the morning.
Wieseneck conceded it is not a total solution but rather a first line of defense to deter the casual fraudster. He compared it to locking your door before going out. If the front door is unlocked, a person can just stroll in and steal everything, but will likely give up if it is locked. A professional criminal with tons of breaking and entering experience, however, is unlikely to be deterred by a lock alone, versus a lock plus an alarm system plus an actual security guard.
“But that doesn’t mean that you don’t lock your door and you don’t add pieces of defense to make it harder for people to either rob your house or, in this case, defraud your company,” he said.
This isn’t to say there’s no plans to bolster this solution further. After all, the feature is only days old. He said the company is already looking into things like pixel analysis and textual analysis of the document itself to further enhance its AI detection capabilities, though he stressed that they want to be very confident it works before pushing it out to customers.
“We’re focused on giving finance teams confidence that legitimate receipts won’t be falsely flagged. So we want to tread carefully. We have lots of ideas. We’re going to work through them and kind of solve them in the same process we’ve always done here at Ramp,” he said.
This is likely only the beginning of AI image generators being used to fake documentation. For instance, it has recently been found that bots are also very good at forging
AI fraud ascendant
This speaks to an overall trend of AI being used in financial crimes which was highlighted in a
The poll found that 61% of respondents say use of AI by cybercriminals is a leading catalyst for risk exposure, such as through the generation of deep fakes and, likely, AI-generated financial documents. While 57% think AI will help against financial crime, 49% think it will hinder (Kroll said they are likely both right).
“The rapid-fire adoption of AI tools can be a blessing and a curse when it comes to financial crime, providing new and more efficient ways to combat it while also creating new techniques to exploit the broadening attack surface — be it via AI-powered phishing attacks, deepfakes, or real-time mimicry of expected security configurations,” said the report.
Yet, many professionals do not feel their current programs are up to the task. The rise in AI-guided fraud is part of an overall projected 71% increase in financial crime risks in 2025. Meanwhile, only 23% rate their compliance programs as “very effective” with lack of technology and investment named as prime reasons. Many also lack confidence in the governance infrastructure overseeing financial crime, with just 29% describing it as “robust.”
They’re also not entirely convinced that more AI is the solution. The poll found that confidence in AI technology has dropped dramatically over the past two years: those who say AI tools have had a positive impact on financial crime compliance have gone from 39% in 2023 to only 20% today. Despite this, there remains heavy investment in AI. The poll found 25% already say AI is an established part of their financial crime compliance program, and 30% say they are in the early stages of adoption. Meanwhile, in the year ahead, 49% expect their organization will invest in AI solutions to tackle financial crime, and 47% say the same about their cybersecurity budgets.
To help combat AI-enabled financial crime, Kroll recommended companies form cross-functional teams that go beyond IT and cybersecurity and involve those in AML, compliance, legal, product and senior management. Further, Kroll said there has to be focused, hands-on training with new AI tools that are updated and repeated as the organization implements new AI capabilities and the regulatory and risk landscape changes. Finally, to combat AI-related fraud, Kroll recommended companies maintain a “back to the basics” approach. Focus on fundamental human intervention and confirmation procedures — regardless of how convincing or time-sensitive circumstances appear.

U.S. tariff rates under Trump will be higher than the Smoot-Hawley levels from Great Depression era

Accountants tackle tariff increases after ‘Liberation Day’

How to use opportunity zone tax credits in the ‘Heartland’

New 2023 K-1 instructions stir the CAMT pot for partnerships and corporations

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