Last November, President Obama signed into law the Bipartisan Budget Act (BBA) of 2015. Among other aspects of the legislation, the law streamlined partnership income tax audit regimes and allowed the IRS to assess the partnership itself, instead of the individual partners beginning in tax year 2018.
However, it’s unclear how states will respond to the federal law change. For example, the BBA requires an imputed underpayment of a reviewed year to be paid with the partnership return of the adjustment year. In other words, the change doesn’t affect a previously filed return, but rather generally results in tax due on the filing of the next partnership return.
Often, states that use federal taxable income as the starting point for computing state income tax require the filing of an amended state return when the Service adjusts income of a previously filed federal return. Under the new regime, would the payment of an imputed underpayment constitute an adjustment of a previously filed return that triggers the requirement for the filing of an amended state return? Arizona HB 1288 answers this question. According to the bill, any "partnership audited by the Internal Revenue Service and that is assessed an imputed underpayment pursuant to section 6225 of the [IRC] as added by the Bipartisan Budget Act of 2015…" will be required to “file a return for the reviewed year on a form prescribed by the Department [of Revenue].”
The bill also conforms the Arizona partnership return filing deadline to the federal deadline, requiring that partnership returns be filed by the 15th day of the third month following the close of the partnership’s taxable year (for partnership taxable years beginning after December 31, 2015).
Stay tuned for updates on how other states respond to the new federal partnership tax law.
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