Montana Partnership Audit Bill May Die Unless Reworked

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By Tripp Baltz

A bill ( H.B. 47) to amend Montana’s tax law to conform to the Internal Revenue Service’s new partnership audit regime likely will be defeated in its current form, the measure’s sponsor told Bloomberg BNA.

Rep. Zach Brown (D), the bill’s chief sponsor, told Bloomberg BNA that he and others backing the legislation, including the Montana Department of Revenue, will work on changes between now and the end of February, when bills from the House have to be transmitted into the Senate. “If we can’t find a workable solution between now and then, the bill will probably not move forward,” Brown said.

Brown said after a Jan. 11 hearing on the bill before the House Taxation Committee that if there was a consensus with the bill as written, the committee would probably vote on it by the end of the week or early next week. “This is a unique situation where the legislation needs work.”

Questions Remain

Brown’s comments came after several groups, including the Council On State Taxation and the Montana Society of CPAs, cautioned legislators about pursuing a bill when so many questions remain about the federal partnership audit legislation approved as part of the Bipartisan Budget Act of 2015. It is expected that Congress will, perhaps in the first half of 2017, pass a technical corrections bill (H.R. 6439, S. 3506) addressing the unanswered questions about new federal partnership audit procedures.

“In our minds, adopting anything at this point would just be very challenging for the states,” Nikki Dobay, senior tax counsel for COST, told Bloomberg BNA. “The problem is you don’t know what you are conforming to. There’s a lot of uncertainty at the federal level.”

Many have encouraged states to wait and see what happens at the federal level. Only Arizona has enacted a conformity bill to date.

In comments submitted to the Montana House Taxation Committee, COST asked the committee to postpone any further action on the bill until interested parties can work with Brown and the department, which requested the bill, to amend the draft.

The bill, in its current form, addresses new state reporting requirements for partnerships having to make adjustments to a federal return after an audit, Brown said. It includes language on paying adjustments and penalties at the partnership level, he said.

Model Proposed

COST and several other tax policy groups, including the Tax Executives Institute, the American Institute of CPAs and the State and Local Tax Committee of the American Bar Association Section of Taxation, recently proposed a model state law for reporting federal audit adjustments. The groups proposed changes to the Multistate Tax Commission’s 2003 uniform model statute for revenue agent report (RAR) laws.

As part of the process, the groups are preparing a list of issues and concerns for states mulling bills like Montana’s, Dobay said. Montana intends to pursue the bill this year, so COST is hoping it can “work with the state to get a bill that is workable for the needs of taxpayers,” she said. She pledged to work with the supporters to make the changes to the bill that are necessary.

Other witnesses urged the committee to postpone action on the bill.

Holly Franz of the Montana Society of CPAs, a chapter of the American Institute of CPAs, said that while the organization generally supports Montana statutes conforming with federal law, there are enough uncertainties in the federal law to make it difficult for the state to administer any rule changes in an efficient manner.

‘No Rush.’

And, she said, the federal law won’t apply to tax returns until after Jan. 1, 2019. Returns won’t be filed until March 2019, with no audits likely until 2020. “So we’re not in a rush,” she said.

Supporters of moving forward now noted that Montana’s Legislature meets only biennially. If nothing is done this year, the next session will be held in 2019.

Also, partnerships in Montana have asked the state for years to allow them to pay through the partnership for adjustments that have been made at the state level, he said.

“We don’t have a law in Montana for a way do that,” Lee Baerlocher, administrator of the Business and Income Taxes Division of the DOR, told the committee.

To contact the reporter on this story: Tripp Baltz in Denver at

To contact the editor responsible for this story: Ryan C. Tuck at

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