On July 1, 2019, California’s Governor, Gavin Newsom, signed Assembly Bill 91 (A.B. 91) into law. This bill conforms selective tax laws in California to the changes made under the Tax Cuts and Jobs Act of 2017 (TCJA). These changes impacted technical terminations for partnerships as follows:
Repeals the partnership technical termination provision to conform to federal income tax law, as amended by the TCJA, applicable for tax years beginning January 1, 2019. Partnerships may elect to apply conformity to partnership taxable years beginning after December 31, 2017, and before January 1, 2019.
Prior to TCJA, if there was a sale or exchange of 50% or more of the total interest in the partnership’s capital and profits, the partnership was treated as technically terminated for federal income tax purposes, triggering a federal income tax filing obligation that may be for a short tax year. However, the TCJA repealed this provision for taxable years beginning on January 1, 2018.
A.B. 91 conforms California to the partnership technical termination repeal for taxable years beginning on or after January 1, 2019. In addition, under A.B. 91 taxpayers may elect to apply this to taxable years beginning on or after January 1, 2018 and before January 1, 2019. However, even though partnerships can elect retroactive application to 2018, many partnerships have already filed their 2018 short year returns by the time A.B. 91 was enacted 1 ½ years after TCJA.
Lindquist, von Husen & Joyce can help you manage your partnerships correctly and assist you in complying with both Federal and California State tax code. Contact your tax engagement partner at LvHJ.
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Repeal of Partnership Technical Termination