Georgia Out Front on State Partnership Audit Efforts

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By Chris Marr

Georgia is on track to be first in enacting a partnership audit law that largely follows a draft multistate model that business-centric tax groups are advocating.

The Senate unanimously approved H.B. 849 on March 29, the last day of Georgia’s 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 a new federal 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.

A coalition of business-centric tax 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—have urged states not to act on the federal changes until the model statute they’ve been developing is available for consideration.

The coalition, known as the “interested parties,” hopes to promote uniformity among states.

However, Rep. Allen Peake (R), sponsor of H.B. 849, told the Legislature Georgia needed to enact the new audit law to avoid having to audit on a partner-by-partner basis even after the federal process was centralized.

COST senior tax counsel Fred Nicely has argued states can safely wait until next year to pass legislation, as the first audits under the new regime won’t begin until after 2018 tax returns are filed in 2019.

That said, Nicely told Bloomberg Tax he was happy that Georgia’s bill largely follows a draft of their model law. The interested parties are nearing the end of their work on the project with the Multistate Tax Commission—an intergovernmental state tax agency that promotes uniformity or compatibility in state tax systems, in part by drafting model state tax laws and conducting joint state tax audits.

The model law could be finished in a couple of months, Nicely said. When it is complete, the Multistate Tax Commission will consider whether to formally adopt and endorse it to states.

Arizona, Minnesota Bills

Georgia is the first state to adopt a partnership audit law in response to the new federal regime that largely mirrors the model legislation, he said. Arizona passed a bill last year that Nicely said “fails to adequately address tiered partnership issues"—when one of the partners is another partnership.

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.

The country’s largest state, California is also beginning to move on the issue, Helen Hecht, general counsel to the MTC, has said.

Georgia’s bill sets deadlines for paying adjustments to the state and provides that a partnership’s federal representative would be considered to be its state-level representative too, unless the partnership notifies the Georgia Department of Revenue otherwise. H.B. 849 also clarifies that the final determination date—after which partnerships are required to make filings and adjusted payments—comes when all opportunities for appeal have been exhausted or waived.

Gov. Nathan Deal (R) will review the bill once it reaches his desk, spokeswoman Jen Ryan told Bloomberg Tax March 30.

His office routinely declines to comment on whether he plans to sign bills awaiting his review. He has 40 days to sign or veto bills after the end of session.

To contact the reporter on this story: Chris Marr in Atlanta at cmarr@bloomberglaw.com

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

For More Information

Text of H.B. 849 is at http://src.bna.com/wsY

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