Income/Franchise:
Revised Outline on MTC Uniformity Committee’s Partnership Project Addresses P.L. 86-272

Updated Partnership Outline – with additions as of August 22, 2022, Multistate Tax Commission, Uniformity Committee (8/22/22). An updated outline prepared by the staff of the Multistate Tax Commission (MTC) as part of the MTC Uniformity Committee’s project on the state taxation of partnerships addresses application of P.L. 86-272 to partnership income, remarking that there are questions as to how “transferrable” the unprotected activities of a partner may be to a partnership and vice versa that have not been answered by the courts. According to the revised outline, examples of such questions include:

• If a partnership has a corporate partner which is domiciled or conducting activities generally unrelated to the partnership’s business in a state, does this mean the partnership may lose the protections of P.L. 86-272;
• Does the fact that an individual limited, passive partner is resident in a state mean that the partnership loses the protections of P.L. 86-272, and/or what if that partner owns a majority interest in the partnership; and
• Does the fact that a partnership does business in a state mean that its corporate partner loses protection for that corporate partner’s separate business which would otherwise be protected?

Note that this outline has been prepared as part of the MTC partnership tax work group’s ongoing efforts to develop model rules on the tax treatment of partnerships [also see “Updated Model on Treatment of Investment Partnership Income – as of August 18, 2022“ addressing the treatment of partnerships engaged primarily in investment activity and the taxation of investment partnership income]. Please contact us with any questions.