Income/Franchise:
Massachusetts: New Release Addresses State Treatment Arising from Federal Partnership Audit Changes

Technical Information Release (TIR) 22-1, Mass. Dept. of Rev. (1/6/22). The Massachusetts Department of Revenue (Department) adopted a technical information release (TIR 22-1) addressing certain provisions within the Massachusetts Fiscal Year 2021 Budget [see H.5164 (2020) for more details on this new law], specifically those involving partnerships that are the subject of a federal audit under the centralized federal partnership audit regime and how Massachusetts is responding to certain changes in the federal partnership audit and adjustment process. TIR 22-1 explains the new Massachusetts partnership tax audit provisions at G.L. c. 62C, § 30B (“§ 30B”), and describes the Massachusetts reporting and payment obligations of partnerships and partners that are subject to a centralized federal partnership audit. According to TIR 22-1, partnerships are subject to § 30B, including the notice requirements described within it, in any instance in which, as a result of a federal audit, there is a difference in the Massachusetts tax liability of any partner from that previously reported – and the “triggering event” for these obligations generally is the “final determination date” and includes a federal administrative adjustment issued to the partnership. TIR 22-1 also explains that the Department has developed a process that will allow partnerships to report federal audit adjustments and report and pay audit assessments on behalf of their partners through its electronic tax system (i.e., MassTaxConnect).

Note that previously issued administrative guidance [see Technical Information Release (TIR) 21-4: Tax Provisions in the Fiscal Year 2021 Budget, Mass. Dept. of Rev. (3/31/21)] explains that § 30B includes provisions that:

• Require audited partnerships to amend their Massachusetts nonresident composite returns or withholding reports;
• Allow audited partnerships to make an election to pay state tax on behalf of their partners; and
• Require partners in an audited partnership to directly pay state tax in certain instances.

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