California Enacts New Partnership Audit Rules

On September 23, 2018, Senate Bill 274, Administration of taxes: notice of deficiency assessment (SB-274), was signed into law by Governor Jerry Brown of California. With the enactment of SB-274, California has adapted its income and franchise tax audit procedures to accommodate the federal partnership audit rules that were established by the Bipartisan Budget Act of 2015 (the "centralized partnership audit regime"), which generally applies to audits of federal partnership income tax returns filed by certain partnerships¹ for any taxable year beginning on or after January 1, 2018.

SB-274 provides certainty regarding how federal partnership audit adjustments will affect California state income and franchise tax liabilities of partnerships and partners and the reporting obligations of, and elections available to, partnership and their partners for California tax purposes; it does not, however, otherwise change the procedures applicable to an audit of a partnership by