California Next to Consider Partnership Audit Changes

Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...

By Che Odom

A California Senate bill that would respond to federal changes impacting partnership audits likely will be introduced April 6.

The bill (S.B.274) could be adopted later this year. If passed, California could become the third state—after Arizona and Georgia—to act on a statute providing for the new federal centralized audit regime created by the Bipartisan Budget Act of 2015. The new process generally centralizes federal audits at the partnership level, replacing a process of partner-by-partner audits.

The California bill follows several provisions of a multistate model bill being developed by a coalition of business-centric groups in conjunction with the Multistate Tax Commission (MTC).

The measure seeks to have partners make payments to the state whenever they make payments to the Internal Revenue Service, Nikki E. Dobay, senior tax counsel of the Council On State Taxation, said during a MTC-hosted conference call April 5.

The California Senate bill wasn’t available online April 5.

In Line With Georgia

Georgia is on track to be first in enacting a partnership audit law that largely follows the draft multistate model.

The coalition of business groups—including the Council On State Taxation (COST), Tax Executives Institute Inc., Institute for Professionals in Taxation, American Institute of CPAs, and a task force of the American Bar Association—has urged states not to act on the federal changes until the model statute is available for consideration. They will need weeks more to finalize the model act, persuade the MTC to adopt it, and encourage states to follow it.

However, the Georgia Senate unanimously approved H.B. 849 on March 29, the last day of the session. The bill now goes to the governor for his signature. H.B. 849 largely conforms the state’s partnership audit procedures to those of the new federal audit regime.

The California bill is in line with Georgia’s, Jonathan Horn, senior manager at the American Institute of CPAs, said during the MTC conference call.

Other States Move

Arizona passed a bill last year that “fails to adequately address tiered partnership issues"—when one of the partners is another partnership, COST senior tax counsel Fred Nicely previously told Bloomberg Tax.

Also, the law “does not address all the issues in our Interested Parties’ model, but it does contain many of the provisions in the model,” he said in an email.

Minnesota’s revenue department also is pushing for its Legislature to pass a partnership audit bill this year, H.F. 3411, Nicely said.

To contact the reporter on this story: Che Odom in Washington at codom@bloombergtax.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bloombergtax.com

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