WASHINGTON, DC—By most measures the budget and debt ceiling deal tentatively reached between Congressional leaders and the White House is a relief. Assuming it passes -- which is still something of an uncertainty -- there will be no government shut down; there will be no catastrophic breach of the debt ceiling.

One provision of the bill, however, is a partial disappointment to the commercial real estate industry. It includes a measure that makes it easier for the Internal Revenue Service to audit partnerships, including private equity and hedge funds.

Congress has been considering such a measure for several months; it was not a surprise. Indeed, organizations such as the Real Estate Roundtable had been lobbying for alternative provisions to replace some of the more draconian parts of the original draft.

Still, one gets the sense that the final result (well, near final; both the House of Representatives and the Senate will be voting on it either today and/or tomorrow) was a let down for the industry.

Last week GlobeSt.com reported on The Real Estate Roundtable's efforts on this measure.

"Based on the feedback we have received, we believe The Roundtable proposals, developed by our tax committee, have made an important contribution to the debate and will be taken closely into account in the next version of legislation on this issue," Roundtable CEO Jeff DeBoer told GlobeSt.com then.

His tone was more subdued about the final measure.

"We spent months working in a constructive way with Congressional tax professionals to explain the potential real world problems," he said in a prepared statement. "The result is not perfect."

DeBoer insists that the recommendations the Roundtable made moved the needle in the right direction. For example, the original proposal would have imposed joint and several liability on individual partners for partnership tax debts. That is now gone.

"Hopefully there will be future opportunities to continue to iron out the remaining aspects of this that are not needed to accomplish the policy goal of greater tax compliance," he said. DeBoer was unable to speak with GlobeSt.com following the bill's passage on Monday night.

The version included in the budget and debt legislation:

· Allows partnerships to avoid entity-level taxation by issuing adjusted statements (K-1s) to partners;

· Does not indirectly subject tax-exempt partners, such as pension funds and educational endowments, to the tax;

· Does not automatically trigger the new enforcement regime when a REIT is a partner.

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Erika Morphy

Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.

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