An Act To Harmonize State Income Tax Law and the Centralized Partnership Audit Rules of the Federal Internal Revenue Code of
Maine Legislature, Session 129, LD 1819
Committee: Taxation
Sponsors: TIPPING
Amends: 36 MRSA §5190, 36 MRSA §5227-A

Legislative Document
No. 1819
H.P. 1296
House of Representatives, June 3, 2019
An Act To Harmonize State Income Tax Law and the Centralized 
Partnership Audit Rules of the Federal Internal Revenue Code of 
1986
Submitted by the Department of Administrative and Financial Services pursuant to Joint 
Rule 204.
Reference to the Committee on Taxation suggested and ordered printed.
ROBERT B. HUNT
Clerk
Presented by Representative TIPPING of Orono.
Be it enacted by the People of the State of Maine as follows:
Sec. 1.  36 MRSA §5190, as enacted by P&SL 1969, c. 154, Pt. F, §1, is amended 
to read:
§5190.  Entity not taxable
A partnership as such shall is not be subject to the tax imposed by this Part.  Persons 
carrying on business as partners shall be are liable for the tax imposed by this Part only in 
their separate or individual capacities.  This section does not apply to the taxes imposed 
by chapters 819 and 827 or the tax imposed on partnership audit adjustments pursuant to 
subchapter 2.
Sec. 2.  36 MRSA c. 815, sub-c. 2 is enacted to read:
SUBCHAPTER 2
PARTNERSHIP AUDITS
§5195.  Definitions
As used in this subchapter, unless the context otherwise indicates, the following 
terms have the following meanings.
1.  Administrative adjustment request.  "Administrative adjustment request" means 
an administrative adjustment request filed by a partnership pursuant to the Code, Section 
6227.
2.  Audited partnership.  "Audited partnership" means a partnership subject to a 
partnership-level audit resulting in a federal adjustment.
3.  Composite return.  "Composite return" means a Maine income tax return filed by 
a partnership or pass-through entity on behalf of some or all of its partners, beneficiaries 
or shareholders under rules adopted by the assessor.
4.  Corporate partner.  "Corporate partner" means a partner that is subject to tax 
pursuant to chapter 817.
5.  Direct partner.  "Direct partner" means a partner that holds an interest directly in 
a partnership or pass-through entity.
6.  Exempt partner.  "Exempt partner" means a partner that is subject to the tax 
imposed by chapter 819 or exempt from the taxes imposed by chapters 803, 809 and 817, 
except to the extent of unrelated business taxable income.
7.  Federal adjustment.  "Federal adjustment" means an adjustment to an item or 
amount determined under the Code that affects the computation of a taxpayer's Maine tax 
liability resulting from a partnership-level audit or other action by the IRS or an amended 
federal return, refund claim or administrative adjustment request filed by a taxpayer.
8.  Federal adjustments report.  "Federal adjustments report" means a method or 
form required by the assessor for use by a taxpayer to report final federal adjustments, 
including an amended tax return and an information return.  A federal adjustments report 
is a return for purposes of this Title, including for the purpose of determining refund and 
assessment periods, interest and penalties.
9.  Federal partnership representative.  "Federal partnership representative" means 
the person designated by a partnership or appointed by the IRS to act on behalf of a 
partnership pursuant to the Code, Section 6223(a) for the reviewed year.
10.  Final determination date.  "Final determination date" has the same meaning as 
in section 5227-A, subsection 2.
11.  Final federal adjustment.  "Final federal adjustment" means a federal 
adjustment for which the final determination date has passed.
12.  Indirect partner.  "Indirect partner" means 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.
13.  IRS.  "IRS" means the United States Internal Revenue Service.
14.  Nonresident partner.  "Nonresident partner" means an individual, trust or estate 
partner that is not a resident partner.
15.  Partner.  "Partner" means a person that holds an interest directly or indirectly in 
a partnership or pass-through entity.
16.  Partnership.  "Partnership" means an entity subject to taxation under the Code, 
Subtitle A, Chapter 1, Subchapter K other than a financial institution subject to tax 
pursuant to chapter 819.
17.  Partnership-level audit.  "Partnership-level audit" means an examination by the 
IRS at the partnership level pursuant to the Code, Subtitle F, Chapter 63, Subchapter C 
that results in federal adjustments.
18.  Pass-through entity.  "Pass-through entity" means an entity, other than a 
partnership, that is not subject to tax under chapter 817 or 819.
19.  Resident partner.  "Resident partner" means a partner that is a resident 
individual or a resident estate or trust under this Part.
20.  Reviewed year.  "Reviewed year" means the taxable year of a partnership that is 
subject to a partnership-level audit from which federal adjustments arise.
21.  State partnership representative.  "State partnership representative" means a 
partnership's federal partnership representative for the reviewed year unless the 
partnership designates in writing another person as its state partnership representative.
22.  Taxpayer.  "Taxpayer" has the same meaning as in section 111, subsection 7 and 
includes a partnership subject to a partnership-level audit or a partnership that has made 
an administrative adjustment request, as well as a tiered partner of that partnership.
23.  Tiered partner.  "Tiered partner" means a partner that is a partnership or pass-
through entity.
24.  Unrelated business taxable income.  "Unrelated business taxable income" has 
the same meaning as in the Code, Section 512.
§5196.  Reporting federal adjustments; partnership-level audit and administrative 
adjustment request
1.  General rule.  Except in the case of adjustments required to be reported for 
federal purposes under the Code, Section 6225(a)(2), a partner shall, in accordance with 
section 5227-A, report and pay any amount due with respect to adjustments arising from 
a partnership-level audit or other action by the IRS that is reported by the taxpayer on a 
timely filed amended federal income tax return, including a return or other similar report 
filed pursuant to the Code, Section 6225(c)(2), or a federal claim for refund by filing a 
federal adjustments report with the assessor for the reviewed year and, if applicable, 
paying the additional tax, penalties and interest due no later than 180 days after the final 
determination date.
In the case of a partnership with partners required to file a federal adjustments report 
pursuant to this subsection and included in a composite return or subject to withholding 
under section 5250-B in the reviewed year, the partnership shall file an amended 
composite return and amended withholding return as required by the assessor and pay any 
additional tax, penalties and interest due no later than 180 days after the final 
determination date.
2.  Authority of state partnership representative.  The state partnership 
representative has sole authority to act on behalf of the partnership for the reviewed year 
with respect to any action required or permitted under this subchapter, and actions 
required or permitted under this Title arising from this subchapter, including a request for 
review pursuant to section 151.  The partnership's direct partners and indirect partners are 
bound by the actions of the state partnership representative.  The assessor may establish 
reasonable qualifications and procedures for designating a person other than the federal 
partnership representative to be the state partnership representative.
3.  Partnership reporting and payment.  An audited partnership is subject to tax 
with respect to final federal adjustments without regard to the election under the Code, 
Section 6226(a).  The amount of tax is determined as provided in this subsection.
A.  An audited partnership shall file a completed federal adjustments report, 
including the distributive share of the adjustment paid by partners under subsection 1 
and other information required by the assessor, and, if subject to tax under this 
subsection, pay the tax due no later than 180 days after the final determination date.
B.  The tax due pursuant to this subsection is determined as follows:
(1)  Exclude from final federal adjustments the distributive share of adjustments 
properly allocable to partners pursuant to subsection 1;
(2)  Exclude from final federal adjustments the distributive share of adjustments 
reported to direct exempt partners not subject to tax on unrelated business taxable 
income;
(3)  For the total distributive shares of the remaining final federal adjustments, 
remove the portion of such adjustments this State is prohibited from taxing under 
the Constitution of Maine or the United States Constitution, net of any expenses 
incurred in production of that income;
(4)  For the total distributive shares of the remaining final federal adjustments 
reported to direct corporate partners subject to tax under chapter 817, and to 
direct exempt partners subject to tax on unrelated business taxable income, 
apportion and allocate such adjustments as provided under chapter 821 and 
multiply the resulting amount by the highest tax rate under section 5200;
(5)  For the total distributive shares of the remaining final federal adjustments 
reported to direct partners that are nonresident partners subject to tax under 
section 5111 or 5160, determine the amount of such adjustments that is Maine-
source income under sections 5142 and 5192 and multiply the resulting amount 
by the highest tax rate under section 5111 for the applicable tax year;
(6)  For the total distributive shares of the remaining final federal adjustments 
reported to tiered partners:
(a)  Determine the amount of such adjustments that is of a type that would be 
subject to sourcing under section 5142, excluding section 5142, subsection 3, 
and calculate the portion of this amount sourced to this State;
(b)  Determine the amount of such adjustments that is income subject to 
sourcing under section 5142, subsection 3; and
(c)  Determine the portion of the amount determined in division (b) that can 
be established to the satisfaction of the assessor to be properly allocable to 
indirect partners that are nonresident partners or other partners not subject to 
tax on the adjustments;
(7)  Multiply the total of the amounts determined in subparagraph (6), divisions 
(a) and (b), reduced by the amount determined in subparagraph (6), division (c), 
by the highest tax rate under section 5111;
(8)  For the total distributive shares of the remaining final federal adjustments 
reported to resident direct partners subject to tax under section 5111 or 5160, 
multiply that amount by the highest tax rate under section 5111 for the applicable 
tax year; and
(9)  Add the amounts determined in subparagraphs (4), (5), (7) and (8), along 
with interest and penalties as provided in sections 186 and 187-B, respectively.
C.  Notwithstanding section 5219-H, a partnership may not claim any of the credits in 
chapter 822 against the tax imposed by this subsection.  However, a partnership may 
claim a credit for income taxes imposed on and paid by the partnership to another 
state of the United States, a political subdivision of any such state, the District of 
Columbia or any political subdivision of a foreign country that is analogous to a state 
of the United States with respect to the distributive shares of the final federal 
adjustments reported to resident direct partners included in the calculation pursuant to 
paragraph B, subparagraph (8) and paid by the partnership to this State.  The credit 
under this paragraph is calculated in the same manner as the credit allowed by section 
5217-A.
4.  Tiered partners.  The direct partners and indirect partners of an audited 
partnership that are tiered partners, and all the partners of those tiered partners that are 
subject to tax under section 5111, 5160 or 5200, are subject to the reporting and payment 
requirements of this section.
5.  Effect of partnership reporting and payment of amounts due.  Except for 
adjustments required to be reported and the tax paid under subsection 1, the proper 
reporting of final federal adjustments and payment of amounts due by a partnership under 
subsections 3 and 4 relieves the partners of the partnership of any tax liability resulting 
from their distributive shares of the adjustments so reported.  The direct partners or 
indirect partners may not take any deduction or credit for this amount or claim a refund of 
the amount in this State.
6.  Failure of audited partnership or tiered partner to report or pay.  Nothing in 
this section prevents the assessor from assessing direct partners or indirect partners for 
taxes they owe, using the best information available, in the event that a partnership or 
tiered partner fails to timely make any report or payment required by this subchapter for 
any reason.
§5197.  Extensions of time
The time periods provided for in this subchapter may be extended:
1.  Automatically for 60 days.  Automatically, upon written notice to the assessor, 
by 60 days for an audited partnership or tiered partner that has 10,000 or more direct 
partners; or
2.  Written agreement.  By written agreement between the taxpayer and the 
assessor.
Any extension granted under this section for filing the federal adjustments report 
extends the last day prescribed by law for assessing any additional tax pursuant to 
sections 141 and 5270 and the period for filing a claim for refund or credit of taxes 
pursuant to sections 144 and 5278 arising from the final federal adjustment.
§5198.  Rules
The assessor may adopt rules governing the treatment of part-year residents and other 
rules necessary to implement this subchapter.  Rules adopted under this section are 
routine technical rules as defined in Title 5, chapter 375, subchapter 2-A.
Sec. 3.  36 MRSA §5227-A, sub-§2, as amended by PL 2011, c. 1, Pt. CC, §3 and 
affected by §5, is further amended to read:
2.  Amended return filed.  The amended Maine return must be filed within 180 days 
from the date of the final determination date of the change or correction or the filing of 
the federal amended return. For purposes of this subsection, "date of the final 
determination date" means the date on which the earliest of the following events occurs 
with respect to a federal taxable year:
A.  The taxpayer has made payment of an additional income tax liability resulting 
from a federal audit, the taxpayer has not filed a petition for redetermination or claim 
for refund for the portions of the audit for which payment was made and the time for 
filing a petition for redetermination or refund claim has expired;
B.  The taxpayer receives a refund from the United States Treasury that resulted from 
a federal audit;
C.  The taxpayer signs Form 870-AD or another Internal Revenue Service form 
consenting to a deficiency or accepting an overassessment;
D.  The taxpayer's time for filing a petition for redetermination with the United States 
Tax Court expires;
E.  The taxpayer and the Internal Revenue Service enter into a closing agreement; and
F.  A decision from the United States Tax Court, a District Court, a federal court of 
appeals, the United States Court of Federal Claims or the United States Supreme 
Court becomes final.; and
G.  The taxpayer files an amended return or similar report pursuant to the Code, 
Section 6225(c).
Sec. 4.  Maine Revised Statutes headnote amended; revision clause.  In the 
Maine Revised Statutes, Title 36, chapter 815, before section 5190, the headnote 
"subchapter 1, generally" is enacted and the Revisor of Statutes shall implement this 
revision when updating, publishing or republishing the statutes.
Sec. 5.  Application.  This Act applies to partnership-level audits, as defined in the 
Maine Revised Statutes, Title 36, section 5195, with respect to taxable years beginning on 
or after January 1, 2018.
SUMMARY
This bill harmonizes Maine law with recent changes in federal law with respect to 
partnership income tax audits wherein a partnership may be liable for federal income tax, 
penalties and interest that result from an audit of the partnership.  This bill imposes a 
corresponding partnership state tax liability for increases in tax, penalties and interest that 
result from a federal audit of the partnership.  This bill applies to partnership-level audits 
of partnerships with respect to taxable years beginning on or after January 1, 2018.