Income taxes: partnerships: audit adjustments: elections.

Existing law requires a partnership, if any item required to be shown on a federal partnership return is changed or corrected by the Commissioner of Internal Revenue or other officer of the United States or other competent authority, and the partnership is issued an adjustment under federal income tax law or made a federal election for alternative to payment with the Internal Revenue Service as part of a partnership level audit, to report each change or correction to the Franchise Tax Board for the reviewed year within 6 months after the date of each final federal determination, and requires the report of adjustments to be sufficiently detailed to allow computation of the California tax changes resulting from the federal adjustment. Under existing law, if the federal changes or corrections result in an increase of state income taxes payable, a tax is imposed on the partnership in lieu of taxes owed by direct and indirect partners, as specified. Under existing law, generally any election made by a partnership for federal income tax audit purposes is required to be applicable for purposes of the Personal Income Tax Law, the Corporation Tax Law, and the administrative provisions for those laws, except a partnership may file a request, in the form and manner specified by the Franchise Tax Board, to make an election different from their federal election, and the Franchise Tax Board is required to grant such request, provided that the partnership is able to establish to the satisfaction of the Franchise Tax Board that the Franchise Tax Board's ability to collect any state income or franchise taxes would not be impeded, and the partnership properly computes the amount of in-lieu tax due or properly files an amended California Nonresident Group Return for all nonresident direct partners and pays the additional amount of any tax due. This bill would clarify the circumstances in which the Franchise Tax Board would be required to grant a partnership's request to make an election different from their federal election as follows: (1) in the case where an audited partnership or tiered partnership makes a federal election for alternative payment, which requires adjustments to be taken into account by the partners, provided that the partnership properly computes the amount of the in-lieu tax due and (2) in the case where an audited partnership or tiered partnership pays the tax at the federal level, provided the partnership is able to demonstrate to the Franchise Tax Board that the Franchise Tax Board's ability to collect any state income or franchise taxes would not be impeded and the partnership properly follows specified reporting provisions.