California Partnership Audit Bill Takes Federal Approach

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By Laura Mahoney

A newly introduced California bill would give partnerships six months to report federal changes to their partnership audits under a new federal audit regime.

S.B. 274 by Sen. Steven Glazer (D) was amended April 9 in response to new federal rules that centralize federal audits at the partnership level, rather than auditing individual partners. Under the bill, partnerships with federal adjustments or elections for alternative payments would report the changes to the California Franchise Tax Board within six months of the date of the final federal determination.

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). If passed, California could become the third state—after Arizona and Georgia—to act on the new federal centralized audit regime created by the Bipartisan Budget Act of 2015.

Federal Conformity

Under the California bill, if the partnership reports and pays additional tax at the federal level, the default is to do the same in California, Nikki E. Dobay, senior tax counsel for the Council On State Taxation, told Bloomberg Tax April 10. The same would apply if the individual partners handle reporting and paying.

Partnerships would have the option to elect to report and pay to California differently than they do at the federal level under the bill, Dobay said.

The FTB wanted the federal conformity approach to reporting changes, Dobay said. The three-member FTB voted in December 2017 to pursue legislation this year and has worked with COST and other interested parties to craft the bill, she said.

As it moves through the Legislature, the bill could be amended to give the FTB regulatory authority to set some type of de minimis level under which the rules wouldn’t apply, Dobay said. The details of the de minimis provision aren’t worked out yet.

The bill must pass both houses by Aug. 31 to reach Gov. Jerry Brown’s (D) desk. It passed the Assembly in 2017 as a measure relating to horse racing and is currently referred to the Assembly Governmental Organization Committee. Now that it deals with a taxation issue, the bill likely will be referred to the Senate Governance and Finance Committee and must pass the committee by July 6 to stay alive for the session.

To contact the reporter on this story: Laura Mahoney in Sacramento, Calif., at lmahoney@bloomberglaw.com

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

For More Information

Text of S.B. 274 is at http://src.bna.com/xOu.

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