Section 30B: Partnership-level audit
Section 30B. (a) As used in this section, the following words shall have the following meanings unless the context clearly requires otherwise:
''Administrative adjustment'', an administrative adjustment pursuant to section 6227 of the Code.
''Approved modification'', a federal modification to an audited partnership's imputed underpayment pursuant to section 6225(c) of the Code.
''Audited partnership'', a partnership audited at the partnership level that results in a federal adjustment.
''Code'', as defined and as applicable under chapter 62 or chapter 63.
''Commissioner'', the commissioner of revenue.
''Direct partner'', a partner that holds an interest directly in a partnership or pass-through entity.
''Distributive share'' or ''distributive share of the final federal adjustment'', the distributive share of the final federal adjustment attributable to a partner of the partnership that is subject to the partnership-level audit.
''Federal adjustment'', a change to an item or amount determined under the Code that is used by an audited partnership or 1 or more of its partners to compute amounts owed under chapter 62 or chapter 63, whether resulting from: (i) action by the United States Internal Revenue Service; (ii) the filing of an amended federal return or other report; (iii) a federal refund claim; or (iv) an administrative adjustment request by the partners.
''Federal adjustments report'', a form or other submission required by the commissioner from an audited partnership to report: (i) a final federal adjustment with respect to a partnership-level audit; and (ii) the distributive share of the final federal adjustment attributable to each partner.
''Final determination date'', (i) if a federal adjustment results from a federal refund claim or an administrative adjustment, or if the federal adjustment has been reported on an amended federal return or other report pursuant to section 6225(c) of the Code, the date on which: (A) the administrative adjustment was made; (B) the amended return or refund claim was filed; or (C) such other report was filed or finalized; (ii) if a federal adjustment results from an audit or other action by the federal government, the date on which no federal adjustment arising from the audit or other action remains to be finally determined, whether by: (A) a decision by the federal government with respect to which all rights of appeal have been waived or exhausted; (B) agreement; or (C) in the event of an appeal or other contest, by a final decision with respect to which all rights of appeal have been waived or exhausted; provided, however, that if a single partnership-level audit results in a final determination under both clauses (i) and (ii), the final determination date shall be the date under clause (ii), unless the context specifically requires otherwise.
''Final federal adjustment'', a federal adjustment as of the final determination date for that adjustment.
''Imputed underpayment'', the amount determined under the notice of proposed partnership adjustment pursuant to section 6231 of the Code that would be owed by the partnership resulting from a partnership-level audit.
''Indirect partner'', a partner in a partnership or pass-through entity that itself holds an interest directly, or through another indirect partner, in a partnership or pass-through entity.
''Nonresident partner'', a partner that is an individual, trust or estate that is not a resident partner.
''Partner'', a person that holds an interest directly or indirectly in a partnership or other pass-through entity.
''Partnership'', as defined in section 1 of chapter 62.
''Partnership-level audit'', an examination by the federal government at the partnership level pursuant to sections 6221 to 6242, inclusive, of the Code that results in 1 or more federal adjustments.
''Pass-through entity'', an entity whose income, gains, losses, deductions or credits pass through to its partners for Massachusetts tax purposes, including a partnership, an S corporation or certain trusts.
''Resident partner'', a partner that is an individual, trust or estate and that is also a resident within the meaning of section 1 of chapter 62.
''Reviewed year'', the taxable year of a partnership that is subject to a partnership-level audit resulting in 1 or more federal adjustments.
''Tiered partnership'', a partner that is a partnership or pass-through entity.
(b)(1) Not later than 90 days after the final determination date, an audited partnership shall: (i) notify the commissioner of the final determination date with respect to a partnership-level audit; (ii) file a federal adjustments report with the commissioner; and (iii) notify each of the audited partnership's direct partners of their distributive share of the final federal adjustment. The federal adjustments report shall: (A) identify each partner during the reviewed year; (B) specify each item addressed by, and the amount included in, the final federal adjustment; (C) explain how the final federal adjustment needs to be modified for state tax purposes to reflect relevant differences between federal and state law; and (D) provide any other information related to the final determination or modification as the commissioner may require. If the audited partnership has received an approved modification, the audited partnership shall notify the commissioner of this approval not later than 90 days after the date of such approval. An audited partnership that fails to meet the filing requirements in this subsection shall be subject to the non-filer penalties under chapter 62C. The statute of limitations for assessing a partner or an audited partnership pursuant to this section shall be tolled in any instance in which the audited partnership has not provided the commissioner with the notice and filing required by this subsection.
(2) If a federal adjustments report, or the verification or investigation of the report or otherwise, identifies any tax due under chapter 62 or chapter 63 that has not been fully assessed to a partner of an audited partnership, or that is not otherwise accounted for under subsections (c) to (e), inclusive, the commissioner shall assess such partner an additional tax in an amount equal to the unpaid tax, with interest and penalties as provided in chapters 62, 62C and 63. Notwithstanding the time limitations of section 26, the assessment shall be made on or after 180 days after the final determination date. The assessment shall be made in the same manner as an assessment under section 30; provided, however, that the manner of making such assessment may be clarified or modified by the commissioner by regulation; and provided further, that the time limitations of said section 30 shall not apply.
(c) An audited partnership that originally reported or paid tax on behalf of some or all of its partners, by means of a composite return or through pass-through entity withholding, shall amend its return or report, as the case may be, in the form and manner required by the commissioner to account for the distributive share of the final federal adjustment attributable to those partners and pay any additional tax, including applicable interest and penalties, attributable to such partners, not later than 90 days after the final determination date. An audited partnership that fails to meet these requirements shall be jointly and severally liable for the taxes due in connection with such return or report.
(d) A partner of an audited partnership shall report and pay tax due under chapter 62 or chapter 63 with respect to adjustments resulting from a partnership-level audit that the partner reports federally on either an amended federal income tax return or otherwise, including through a return or report filed pursuant to section 6225(c)(2) of the Code, without including adjustments required to be reported for federal purposes pursuant to section 6225(a)(2) of the Code, not later than 180 days after the final determination date that relates to the adjustment as reported on such return or other report. The requirement to make such report and payment shall be treated as being in response to a federal change within the meaning of section 30 of chapter 62C and will be subject to interest and penalties thereunder.
(e)(1) If taxes due from an audited partnership's partners under chapter 62 or chapter 63 are not otherwise accounted for under subsections (c) or (d), the audited partnership may make an election to pay such taxes not later than 90 days after the final determination date. An audited partnership making this election shall make such payment not later than 180 days after the final determination date. An election under this subsection shall not apply to the distributive share attributable to a corporate partner that participated in a combined report under section 32B of said chapter 63 for the reviewed year and such distributive share shall not be included in the computation of the tax payment with respect to the distributive shares attributable to the audited partnership's direct and tiered partners under this paragraph. Such corporate partner shall directly account for its taxes owed. The tax payment with respect to the distributive shares attributable to the audited partnership's direct and tiered partners shall be determined as follows:
(A) for distributive shares attributable to direct partners that are not tiered partnerships, the tax payment shall be determined as follows:
(i) the distributive share reported or attributable to each direct partner that is not subject to Massachusetts income tax shall be excluded from the total distributive share attributable to such partners;
(ii) for a partner subject to income tax under said chapter 63, including under section 38Y of said chapter 63, the partner's distributive share shall be allocated or apportioned, as provided under said chapter 63, using the allocation or apportionment method applicable to the partner and the resulting amount shall be multiplied by the applicable rate of tax set forth in said chapter 63;
(iii) for a partner who is a Massachusetts resident subject to tax under said chapter 62, the amount of the partner's distributive share subject to tax under said chapter 62 shall be multiplied by the rate of tax set forth in said chapter 62 that is applicable to each item of income; and
(iv) for a partner who is a nonresident subject to tax under section 5A of said chapter 62 or section 10 of said chapter 62, the amount of each such partner's distributive share required to be sourced to the commonwealth and subject to tax under said section 5A of said chapter 62 or said section 10 of said chapter 62 shall be multiplied by the rate of tax set forth in said chapter 62 that is applicable to each item of income.
(B) for the distributive shares attributable to indirect partners, the tax payment shall be determined as follows:
(i) an indirect partner's distributive shares shall be treated as if attributable to a resident direct partner and the tax shall be determined using the method set forth in clause (iii) of subparagraph (A), except to the extent that certain shares are subject to the calculations set forth in clause (ii);
(ii) to the extent that the audited partnership or the commissioner can clearly demonstrate that an indirect partner is subject to income tax under chapter 63, including under said section 38Y of said chapter 63, the tax owed on such partner's distributive share shall be calculated using the methods set forth in clause (ii) of subparagraph (A);
(iii) to the extent that the audited partnership can clearly demonstrate that an indirect partner is subject to tax under said section 5A of said chapter 62 or said section 10 of said chapter 62, the tax owed on the amount of the partner's distributive share required to be sourced to the commonwealth under said section 5A of said chapter 62 or said section 10 of said chapter 62 shall be calculated using the method set forth in clause (iv) of subparagraph (A); and
(iv) to the extent that the audited partnership can clearly demonstrate that an indirect partner is not subject to Massachusetts income tax, the distributive share attributable to the partner shall be excluded from the calculation; and
(C) the amount to be paid by the audited partnership on behalf of the partners shall be determined by adding the amounts determined in clauses (ii) to (iv), inclusive, of subparagraph (A), the amounts determined in clauses (i) to (iii), inclusive, of subparagraph (B) and any interest or penalty attributable to the respective partners as determined under chapters 62, 62C and 63.
(2) A partnership that makes an election under this subsection that is not otherwise subject to the laws of the commonwealth shall consent to be subject to such laws. A partnership that makes this election shall be subject to section 31A as if it were an individual.
(3) An election made pursuant to this subsection is irrevocable, unless the commissioner consents to a partnership's request to revoke the election or determines that the election was made to avoid the imposition of the proper amount of tax.
(4) If properly reported and paid, the amount determined under this subsection with respect to an audited partnership shall be treated as paid on behalf of the partners of the partnership. Such partners shall not take any deduction or credit for this amount or based on this amount or claim a refund of this amount. Nothing in this section shall preclude a resident partner from claiming a credit against taxes paid to another jurisdiction under subsection (a) of section 6 of said chapter 62 for any amount paid by the partnership on the resident partner's behalf to another jurisdiction.
(f) The direct and indirect partners of an audited partnership that are tiered partnerships, and all of the partners of such tiered partnerships that are subject to tax under chapter 62 or chapter 63, shall be subject to the reporting and payment requirements of subsections (b), (c) and (d). The indirect partners and their partners shall make required reports and payments not later than 90 days after the time for filing and furnishing statements to the indirect partners and their partners consistent with section 6226 of the Code. For an audited partnership that has not made the election under subsection (e), its partners that are tiered partnerships are entitled to make such election, and to pay an amount on behalf of such tiered partnerships' partners, consistent with said subsection (e).
(g) An audited partnership and a partner of an audited partnership that makes an election pursuant to subsection (e) shall be a taxpayer for purposes of chapters 62, 62C and 63, as applicable, with respect to the duties and obligations imposed by, and any rights resulting from, said chapters 62, 62C and 63 and this section.
(h) The commissioner may enter into an agreement with an audited partnership or a tiered partnership to use an alternative reporting and payment method.
(i) If an audited partnership fails to timely make a payment or file a report required under this section or underpays any taxes due, the commissioner may assess 1 or more partners for taxes they owe under chapter 62 or chapter 63, including interest and penalties, according to the commissioner's best information and belief.
(j) Nothing in this section shall limit the ability of the commissioner to audit or assess direct partners, indirect partners or tiered partnerships with respect to items derived from an audited partnership or the ability of the commissioner to inspect the books and records of an audited partnership.
(k) For purposes of this section, a partnership representative shall have the sole authority to act on behalf of the audited partnership and its direct and indirect partners with respect to actions taken by the audited partnership under this section. The audited partnership's direct and indirect partners shall be bound by the partnership representative's actions. The partnership representative shall be deemed to be the partnership representative as determined under the Code; provided, however, that the commissioner may modify the determination and provide additional rules for making the determination through regulations or other guidance.
(l) An audited partnership or a partner of the audited partnership may make payments to the commissioner as set forth in chapters 62, 62C or 63 of a tax expected to be due from a pending partnership-level audit prior to the due date of the federal adjustments report. The payments shall be credited against any tax liability ultimately found to be due and shall limit the accrual of further statutory interest on such amount. If the payments exceed the final tax liability, including any interest and penalties, the audited partnership or partner may be entitled to a refund or credit, as the case may be, under said chapters 62, 62C or 63, as applicable, if the audited partnership or partner files a federal adjustments report or claim for a refund not later than 1 year after the final determination date.
(m) The commissioner may promulgate regulations and issue other guidance to implement or explain the provisions of this section. Such regulations or other guidance may apply the principles set forth in sections 6221 to 6242, inclusive, of the Code or federal regulations or other guidance promulgated or issued thereunder to prevent the omission or duplication of state tax due as the result of a partnership-level audit and to account for differences between federal and state law.