April 26, 2021
Montana adopts partnership audit rules
On March 31, 2021, Montana Governor Greg Gianforte signed House Bill 53 (HB 53), which addresses the methods and timing of how some partnerships must report federal tax adjustments to the Montana Department of Revenue (Department). HB 53 was enacted in response to changes in the federal partnership audit and adjustment rules under the Bipartisan Budget Act of 2015. Montana considered similar legislation in 2017, but it was not enacted.
HB 53 generally aligns with many of the provisions in the Multistate Tax Commission's "Model Uniform Statute for Reporting Adjustments to Federal Taxable Income and Federal Partnership Audit Adjustments." HB 53 includes the following provisions:
- Defining "final federal adjustment" and "final determination" based on all tax-year issues being final at the federal level
- Defaulting to the federal partnership representative unless the partnership designates another person as the state partnership representative
- Establishing that a partnership has 90 days after the final determination to (1) file a federal adjustment report, (2) notify its direct partners of their distributive shares of final federal adjustments, and (3) either file an amended information or composite return
- Requiring the partnership to pay the withholding or composite tax due and giving the direct partners 180 days after the final determination to file amended returns and pay any additional amounts due (less credit for taxes withheld or remitted by the partnership)
- Allowing electing partnerships to file a federal adjustment report up to 90 days after the final determination and to pay taxes due, in lieu of amounts owed by direct partners, no later than 180 days after the final federal adjustments report
- Allowing tiered partnership structures (when partnerships own other partnerships)
- Allowing tiered partners to make a different state election and file 90 days after the federal due date for tiered partner returns at the federal level (Department will promulgate regulations to establish procedures and periods for making an election to have the partnership pay on behalf of tiered partners)
- Limiting the state's and the taxpayer's ability, absent a waiver, to make changes after the state's general statute of limitation expires
- Introducing clearly stated assessment and refund periods
HB 53 became effective upon the Governor's signature and applies to tax adjustments made after March 31, 2021.
Partnerships should consider the effects of the new legislation and how to address certain issues with their partners. EY will continue to monitor developments in this area including the promulgation of administrative rules to support these new provisions.
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