Oregon adopted partnership audit procedures to bring Oregon into conformity with the federal centralized partnership audit regime.
The federal partnership audit provisions were adopted in the Bipartisan Budget Act of 2015.
Federal Centralized Partnership Audit Regime
Under the federal partnership audit regime, the Internal Revenue Service audits all partnerships and their partners at the partnership level. The IRS then assesses all taxes and penalties resulting from the audit at that level.
Partnerships with under 100 or fewer qualifying partners can elect to opt out.
Multistate Tax Commission Model Uniform Statute
In response to the federal regime, the Multistate Tax Commission adopted a Model Uniform Statute for Reporting Adjustment to Federal Taxable Income and Federal Partnership Audit Adjustments.
Some of the provisions of the model statute include:
- partnerships have 90 days to report and make payments from a partnership level audit;
- direct partners have 180 days after the final determination to file a federal adjustment report and pay additional tax; and
- partnerships can make an election to pay for direct and indirect partners.
States that Have Responded
In addition to Oregon, several other states have adopted partnership audit procedures including:
Oregon, Georgia, Maine and West Virginia all adopted statutes based on the MTC model.
Oregon’s Partnership Audit Statute
The Oregon partnership audit statute applies to adjustments for partnership tax year beginning after 2017.
The partnership’s federal representative must act as the partnership’s Oregon representative unless the partnership designates another Oregon representative. The Oregon partnership representative has the sole authority to act on behalf of the partnership.
The representative’s actions bind the direct and indirect partners.
Reporting of Federal Changes
A partnership must notify Oregon of federal changes on the later of:
- 180 days after the date of the federal notice of final partnership adjustment; or
- 90 days after the date the amended federal return, refund claim or other similar report or administrative request was filed.
Direct Partner Responsibilities
Within 270 days of the federal notice of final partnership adjustment or 180 days after the amended federal return, federal refund claim or other similar report, each direct partner must:
- file an adjustments report or an original amended return reporting the partner’s distributive share of adjustments; and
- pay any additional amount of tax due had the adjustments been reported properly.
Partnership Election to Pay
The partnership can choose to pay at the partnership level. Partnerships electing to pay must meet two deadlines:
- Within 180 days after the date of the federal notice of final partnership adjustment:
- file a completed adjustments report; and
- notify Oregon it is electing to pay.
- No later than 270 days after the date of the federal notice of final adjustment pay an amount, in lieu of taxes owed by the direct and indirect partners of the partnership.
The election to pay at the partnership level is irrevocable. The partnership pays additional tax using the highest applicable marginal tax rates of respective partner entity types.
Oregon can approve an alternative reporting and payment method.
Assessment of Additional Tax
Oregon must issue a partnership a notice of deficiency on or before the later of:
- the expiration of the applicable limitations period; or
- 2 years following the earlier of the date the department is notified by the IRS or the date the taxpayer files the adjustments report.
By Andrew Soubel, J.D.