Compilation of Rules and Regulations of the State of Georgia
Department 560 - RULES OF DEPARTMENT OF REVENUE
Chapter 560-7 - INCOME TAX DIVISION
Subject 560-7-3 - SUBSTANTIVE REGULATIONS
Rule 560-7-3-.11 - Partnership and Pass-Through Entity Audits

Universal Citation: GA Rules and Regs r 560-7-3-.11

Current through Rules and Regulations filed through September 23, 2024

(1) Purpose. The purpose of this regulation is to provide guidance concerning the administration of federal adjustments pursuant to subsection (c) of O.C.G.A. § 48-7-53 and partnership and pass-through entity audits conducted by the Department pursuant to subsections (d) and (e) of O.C.G.A. § 48-7-53, respectively.

(2) Definitions. As used in this regulation:

(a) "Administrative adjustment request" means the same as provided in Section 6227 of the Internal Revenue Code of 1986 and the regulations thereunder.

(b) "Audited partnership" means a partnership subject to a final federal adjustment resulting from a partnership level audit.

(c) "Corporate partner" means a C corporation partner that is subject to tax pursuant to O.C.G.A. § 48-7-21.

(d) "Direct partner" means a person that holds an interest directly in an audited partnership, including a person who holds such interest through another person who is a disregarded LLC or other entity that is disregarded for federal and Georgia income tax purposes.

(e) "Exempt partner" means a partner that is exempt from taxation pursuant to paragraph (1) of subsection (a) of O.C.G.A. § 48-7-25.

(f) "Federal adjustment" means a change to an item or amount required to be determined under the Internal Revenue Code of 1986 and the regulations thereunder that is used by a partnership to compute state tax owed for the reviewed year where such change results from a partnership level audit. A federal adjustment is positive to the extent that it increases Georgia taxable net income or decreases a net loss as determined under Title 48 and is negative to the extent that it decreases Georgia taxable net income or increases a net loss as determined under Title 48.

(g) "Federal adjustments report" means an amended Georgia income tax return that arises directly or indirectly from a partnership level audit and which for the audited partnership and any tiered partners, identifies all partners that hold an interest directly in such audited partnership or tiered partner and provides the effect of the final federal adjustments on such partner's Georgia taxable net income. For the audited partnership, the federal adjustments report shall also contain information reasonably necessary to provide the Commissioner with an understanding of all adjustments to the audited partnership's federal taxable income and the amount of such adjustments allocated to each of its partners; a copy of the report received from the Internal Revenue Service shall be sufficient if it provides the Commissioner with an understanding of all adjustments to the audited partnership's federal taxable income and the amount of such adjustments allocated to each of its partners. For all tiered partners, the federal adjustments report shall also contain information reasonably necessary to provide the Commissioner with an understanding of all adjustments to a tiered partner's federal taxable income and the amount of such adjustments allocated to each of its partners.

(h) "Federal partnership representative" means the person the partnership designates for the taxable year as the partnership's representative, or the person the Internal Revenue Service has appointed to act as the federal partnership representative, pursuant to Section 6223(a) of the Internal Revenue Code of 1986 and the regulations thereunder.

(i) "Fiduciary partner" means a fiduciary that is subject to tax pursuant to O.C.G.A. §§ 48-7-20 and 48-7-22.

(j) "Final determination date" means the following:
1. If the federal adjustment arises from a partnership level audit, the final determination date is the first day on which no federal adjustments arising from that audit remain to be finally determined, whether by agreement, or, if appealed or contested, by a final decision with respect to which all rights of appeal have been waived or exhausted. For agreements required to be signed by the Internal Revenue Service and the audited partnership, the final determination date is the date on which the last party signed the agreement; or

2. If the adjustment results from filing an administrative adjustment request, the final determination date means the day on which the administrative adjustment request was filed.

(k) "Final federal adjustment" means a federal adjustment after the final determination date for that federal adjustment has passed.

(l) "Georgia income tax" means the tax imposed by O.C.G.A. §§ 48-7-20, 48-7-21, and 48-7-25, and as provided in subsection (c) of O.C.G.A. § 48-7-53.

(m) "Indirect partner" means a partner in a partnership or pass-through entity where such partnership or pass-through entity itself holds an interest directly, or through another indirect partner, in a partnership or pass-through entity.

(n) "Individual partner" means a partner who is a natural person that is subject to tax pursuant to O.C.G.A. § 48-7-20.

(o) "Internal Revenue Service" means the Internal Revenue Service of the United States Department of the Treasury.

(p) "Nonresident partner" means a partner that is not a resident as defined in O.C.G.A. § 48-7-53 and this regulation.

(q) "Partner" means a person that holds an interest, directly or indirectly, in a partnership or pass-through entity.

(r) "Partnership" means an entity subject to taxation under Subchapter K of the Internal Revenue Code of 1986 and the regulations thereunder and includes, but is not limited to, a syndicate, group, pool, joint venture, or other unincorporated organization through or by means of which any business, financial operation, or venture is carried on and which is not, within the meaning of this chapter, a trust, estate, or corporation.

(s) "Partnership level audit" means an examination or other review by the Internal Revenue Service for taxable years beginning on or after January 1, 2018, at the partnership level pursuant to the Internal Revenue Code of 1986 and the regulations thereunder either of which results in final federal adjustments initiated and made by the Internal Revenue Service.

(t) "Pass-through entity" means an entity, other than a partnership, that is not subject to tax under O.C.G.A. § 48-7-21 for C corporations but excluding an exempt partner.

(u) "Reallocation adjustment" means a final federal adjustment that changes the shares of items of partnership income, gain, loss, expense, or credit allocated to a partner that holds an interest directly in a partnership or pass-through entity. A positive reallocation adjustment means a reallocation adjustment that would increase Georgia taxable net income or decrease a net loss for such partners, and a negative reallocation adjustment means a reallocation adjustment that would decrease Georgia taxable net income or increase a net loss for such partners.

(v) "Resident partner" means for an individual or fiduciary partner, the same as provided in O.C.G.A. § 48-7-1 and for all other partners means a partner whose headquarters or principal place of business is located inside this state. Whether a person is a resident partner shall be based upon the facts as such existed during the reviewed year.

(w) "Reviewed year" means the taxable year of a partnership that is subject to a partnership level audit from which final federal adjustments arise.

(x) "State partnership audit or pass-through entity audit" means an examination by the Commissioner at the partnership or pass-through entity level which results in adjustments to partnership or pass-through entity related items or reallocations of income, expenses, gains, losses, credits, and other attributes among such partners for the reviewed year. Included within this definition are adjustments made at the partnership or pass-through entity level that may affect a partner's apportionment and/or allocation of income or loss.

(y) "Tiered partner" means any partner that is a partnership or pass-through entity.

(z) "Unrelated business income" means the income which is defined in Section 512 of the Internal Revenue Code of 1986 and the regulations thereunder.

(aa) "Withholding partner" means a partner in a partnership for whom the partnership was required to withhold tax pursuant to O.C.G.A. § 48-7-129 for the reviewed year.

(3) Reporting of Partnership Federal Adjustments.

(a) A federal adjustment shall be reported by the partnership and its direct and indirect partners as provided in subsection (c) of O.C.G.A. § 48-7-53. Although the Commissioner receives audit and other information from the Internal Revenue Service, partnerships and their representatives should monitor the progress of a federal audit so a determination can be made regarding compliance with O.C.G.A. § 48-7-53 and this regulation.

(b) In order for a partnership or tiered partner to make the irrevocable election to pay the Georgia tax on behalf of its partners:
1. It shall report the total additional Georgia taxable income on an amended Georgia income tax return, check the appropriate box to make the irrevocable election, and attach a schedule to its amended Georgia income tax return that includes the details of the federal adjustment and positive reallocation adjustments, any modifications to such federal adjustment and positive reallocation adjustments that are required by Title 48, the resulting final federal adjustments and positive reallocation adjustments as modified by Title 48, the amount of income allocated to and outside of Georgia pursuant to O.C.G.A. § 48-7-31(c), the apportionment ratio of the partnership, the additional amount of Georgia taxable income apportioned and allocated to Georgia as provided by O.C.G.A. § 48-7-31, and the following information for each of its partners:
(i) The name of the partner;

(ii) The federal tax identification number of the partner;

(iii) The last known address of the partner;

(iv) The type of partner (i.e. partnership, C-Corporation, S-Corporation, individual, fiduciary, etc.); and

(v) For a partner that is a corporate partner, tiered partner, exempt partner, nonresident individual partner, or nonresident fiduciary partner:
(I) The distributive share of the federal adjustment and positive reallocation adjustments;

(II) The distributive share of any modifications to such federal adjustment and positive reallocation adjustments that are required by Title 48;

(III) The distributive share of the final federal adjustments and positive reallocation adjustments as modified by Title 48, but before apportioning and allocating such adjustments as provided by O.C.G.A. § 48-7-31; and

(IV) The distributive share of the additional amount of Georgia taxable income apportioned and allocated to Georgia as provided by O.C.G.A. § 48-7-31 which equals the additional amount of Georgia taxable income for such partner;

(V) And for such partner that is an exempt partner, whether or not and to what extent the income was unrelated business income; and

(vi) For a partner that is a resident individual partner or resident fiduciary partner:
(I) The distributive share of the federal adjustment and positive reallocation adjustments;

(II) The distributive share of any modifications to such federal adjustment and positive reallocation adjustments that are required by Title 48: and

(III) The distributive share of the final federal adjustments and positive reallocation adjustments as modified by Title 48 without apportioning and allocating such adjustments as provided by O.C.G.A. § 48-7-31, which equals the additional amount of Georgia taxable income for such partner.

2. Each partner is required to provide information requested by the partnership or tiered partner so that the partnership can comply with subparagraph (3)(b)1.

3. Even when the partnership or tiered partner makes the election to pay the tax on behalf of its partners, the partnership shall also provide the subparagraph (3)(b)1. (v) and (vi) information to its partners; however, the partnership must also include the amount of Georgia income tax paid on each partner's behalf with a notation to the partner that such amount cannot be claimed on a Georgia return.

4. Only the following credits shall be eligible to reduce any tax owed when the partnership or tiered partner makes the election to pay the tax on behalf of its partners:
(i) Amounts paid by the partnership or tiered partner that have not been previously passed through and made available to its partners; and

(ii) Series 100 tax credits that are eligible to be directly transferred or sold pursuant to the applicable statute and that have not been previously passed through and made available to the partners of the partnership or tiered partner. Series 100 tax credits include any tax credit designated by the Department with a tax credit code from 100 through 199.

5. If a Georgia credit is reduced, the partnership or tiered partner may include the amount of such reduction in its election to pay the tax on behalf of its partners.

6. No net operating losses of any type shall be eligible to reduce the total additional Georgia taxable income or distributive share of such income when the partnership or tiered partner makes the election to pay the tax on behalf of its partners.

7. A federal adjustment, other than a negative reallocation adjustment, that reduces Georgia taxable income shall be eligible to be included provided in the aggregate Georgia taxable income has increased for the taxable year.

8. All partners of the partnership or tiered partner must be included in the election to pay the tax on behalf of its partners including those that were originally included in a composite return filed pursuant to O.C.G.A. § 48-7-129.

9. If the Commissioner determines that a partnership or tiered partner fraudulently under reported its income on a return, the Commissioner shall treat any income attributable to a tiered partner of such partnership or tiered partner as being apportioned and allocated entirely to Georgia to the extent the direct and indirect partners of such tiered partner are resident partners.

10. If the partnership or tiered partner pays the tax on behalf of its partners, the partners of such partnership or tiered partner shall exclude the income on which such tax was paid and such tax paid when filing any subsequent amended return. Since the income is excluded, no tax attributes of the affected partners shall be reduced.

11. If multiple years are included in the audit, the partnership or tiered partner may make a separate election for each year and shall not be required to make the election for all years.

(c) A partner that is a federal S Corporation that files a return as a Georgia C Corporation because the Subchapter "S" election is not recognized as provided by O.C.G.A. § 48-7-21, shall be treated as a corporate partner for purposes of O.C.G.A. § 48-7-53 and this regulation.

(d) A disregarded LLC or other entity that is disregarded for federal and Georgia income tax purposes shall also be disregarded for all purposes of O.C.G.A. § 48-7-53 and this regulation.

(e) Negative reallocation adjustments shall not be included in the election to pay.

(f) State partnership representative.
1. The state partnership representative for the reviewed year for a partnership is a partnership's federal partnership representative unless the partnership designates in writing another person as its state partnership representative. If a partnership desires to designate a person other than their federal partnership representative, they shall designate such person by attaching a written statement to the income tax return filed. If at a later date the income tax return is changed by the Commissioner to provide a place to indicate such designation, the partnership shall designate in such place instead of attaching a written statement. If the partnership wants to change the initial representative, they shall file an amended return and attach a written statement indicating such or attach a written statement indicating such to the federal adjustments report when it is filed.

2. The qualifications for a person to be a state representative are the same as provided by the Internal Revenue Service for a federal partnership representative.

(g) If the income of the partnership is exempt pursuant to subsection (c) of O.C.G.A. § 48-7-24, the partnership shall indicate such on its federal adjustments report.

(4) State Partnership and State Pass-Through Entity Audits.

(a) State partnership and state pass-through entity audit adjustments shall be subject to subsections (d) and (e) of O.C.G.A. § 48-7-53, respectively.

(b) Unless otherwise specified by the Commissioner, the election to pay the tax on behalf of its partners shall be made by checking the appropriate box on the Georgia income tax return and shall be subject to the same provisions provided in paragraph (3) of this regulation. This election may be made on an original return or amended income tax return or at the time of the audit by providing a written statement to the Commissioner.

(c) If the partnership or pass-through entity makes the election to pay the tax on behalf of its partners and the partnership or pass-through entity pays the money owed during the audit process, the partnership or pass-through entity shall not be required to file an amended Georgia income tax return.

(d) The Commissioner may issue a proposed notice of adjustment to the partnership or pass-through entity which may be protested pursuant to O.C.G.A. § 48-2-46. Any final notice of adjustment issued by the Commissioner to the partnership or pass-through entity shall be treated as an assessment for purposes of O.C.G.A. §§ 48-2-59 and 48-7-82, and, as such, the notice shall be appealable pursuant to O.C.G.A. § 48-2-59 and shall be issued within the time period provided by O.C.G.A. § 48-7-82. If the partnership or pass-through entity makes the election to pay the tax on behalf of its partners, the Commissioner may issue a proposed assessment which may be protested pursuant to O.C.G.A. § 48-2-46. Any final assessment shall be appealable pursuant to O.C.G.A. § 48-2-59 and shall be issued within the time period provided by O.C.G.A. § 48-7-82. Once the adjustments to partnership or pass-through entity related items or reallocations of income, expenses, gains, losses, credits, and other attributes among such partners for the reviewed year are finally determined, the partnership or pass-through entity and any direct partners or indirect partners shall then be subject to the provisions of subsection (c) of O.C.G.A. § 48-7-53 in the same manner as if the state partnership or pass-through entity audit was a partnership level audit. As such any assessment of additional Georgia income tax or claims for refund of Georgia income tax for direct partners or indirect partners shall be assessed or claim filed in the time provided by paragraphs (6) and (7) of subsection (c) of O.C.G.A. § 48-7-53, respectively.

(e) The partnership representative shall be the same as is designated pursuant to paragraph (3) of this regulation. If the partnership wants to change such representative at the time of the audit, they shall provide a written statement to the Commissioner at any time during the audit or during the appeal of any assessment. Such statement shall also override any current designation for purposes of paragraph (3) of this regulation.

(f) A pass-through entity shall designate a person as their state partnership representative by attaching a written statement to the income tax return filed by the original due date of the return including extensions. If at a later date the income tax return is changed to provide a place to indicate such designation, the pass-through entity shall designate in such place instead of attaching a written statement. The qualifications for a person to be a state representative are the same as provided by the Internal Revenue Service for a federal partnership representative. If the pass-through entity wants to change the initial designation, they shall file an amended return and attach a written statement indicating such or provide a written statement to the Commissioner at the time of the state pass-through entity audit.

(5) Written Statements. All written statements provided pursuant to this regulation shall be signed under penalty of perjury by a person authorized to sign the income tax return.

(6) Effective Date. The provisions set forth in this regulation relating to reporting of partnership federal adjustments apply to taxable years beginning on or after January 1, 2018. The provisions set forth in this regulation relating to state partnership audits and state pass-through entity audits apply to taxable years beginning on or after January 1, 2017 unless an earlier application is agreed to by the Commissioner and the partnership or pass-through entity.

O.C.G.A. §§ 48-2-12, 48-7-21, 48-7-27, 48-7-53.

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