SB 274: Partnership audit tax bill is an example of a collaborative legislative process

In 2015, Congress passed the Bipartisan Budget Act of 2015, which, among other changes, modified Internal Revenue Service partnership audit procedures. The new rules allow the IRS to assess and collect any tax, penalty or adjustment resulting from an audit at the partnership level, instead of at the individual partner level. This change alleviates some of the administrative difficulties with large partnership audits where a partnership may have numerous partners. The new partnership audit rules also provides an election for the partners and partnership to opt out of the partnership level audit and "push out" any audit-related tax, penalty, or adjustment to the partners.

California does not automatically conform to changes to the Internal Revenue Code. Thus, the new federal partnership audit rules created a disconnect in how the IRS and California Franchise Tax Board audited partnerships. To bridge the gap between the rules, State Sen. Steven Glazer (D) introduced Senate Bill 274, which would conform California to the IRS partnership audit rules. SB 274 received bipartisan support from its introduction. After it passed, Gov. Jerry Brown promptly signed the bill into law.

Even though the bill was introduced by Glazer, the bill originated from the FTB. The three members of the FTB decided to sponsor legislation that would provide the agency with statutory authority to collect taxes under the federal partnership audit rules. Not only was the bill approved unanimously in both the Assembly and Senate, the bill also garnered significant support from private sector industry groups such as the Council On State Taxation, California Taxpayers Association, and Master Limited Partner Association. Furthermore, the bill received no opposition from any third-party entities.

SB 274 was also marked with an urgency measure stating that the bill must immediately go into effect to provide imperative tax administration relief to taxpayers and mitigate costly administrative burdens on state tax agencies. The Senate Committee on Governance and Finance commented that since SB 274 was a collaborative effort between multi-state taxpayer groups and the FTB, it could be a model statute for other states. We also believe the passage of SB 274 is a model for a collaborative legislative process where the public and both sides of the political aisle work together to push through important legislation that will reduce taxpayer and administrative costs in the long run.