43-1414. Federal assessment of imputed underpayment; definitions

A. A partnership that is audited by the internal revenue service and that is assessed an imputed underpayment pursuant to section 6225 of the internal revenue code as added by the bipartisan budget act of 2015 (P.L. 114-74) or a partnership that makes the election under section 6226 of the internal revenue code as added by the bipartisan budget act of 2015 (P.L. 114-74) shall file a return for the reviewed year on a form prescribed by the department that shows the adjustments to income or the gain, loss or deduction on which the federal imputed underpayment was based as well as any of the correlative adjustments to the additions required under section 43-1021 or the subtractions required under section 43-1022.

B. If the adjustments determined in subsection A of this section are:

1. A net increase in Arizona taxable income and paragraph 2 of this subsection does not apply:

(a) Within ninety days after the final determination regarding the adjustment from the internal revenue service, the partnership shall pay the tax on the adjustments in lieu of passing the adjustments through to the partners.

(b) The tax shall be imposed on the Arizona share of the adjustments at the highest tax rate imposed on individuals under section 43-1011.

(c) Interest shall be computed pursuant to section 42-1123 for the period beginning on the day after the partnership return due date for the reviewed year, without regard to any extensions.

(d) For the purposes of imposing penalties under section 42-1125, the due date of the return under subsection A of this section is the ninetieth day after the final determination of the partnership adjustments by the internal revenue service.

2. A net reduction in Arizona taxable income or a net increase in Arizona taxable income of a partnership that makes the election under section 6226 of the internal revenue code as added by the bipartisan budget act of 2015 (P.L. 114-74), within ninety days after the final determination regarding the adjustment from the internal revenue service, the partnership shall furnish to each partner of the partnership and to the department a statement on a form prescribed by the department of the partner's share of the adjustments required in subsection A of this section. The amount reported to the partner under this subsection is an adjustment to the partner's share of partnership taxable income. A partnership that had a net increase under this paragraph and that fails to timely provide the statements required to the partners and to the department shall pay the tax pursuant to paragraph 1 of this subsection in lieu of the partners reporting the adjustment.

C. If a partnership fails to file the return that is required under subsection A of this section or if the department is not satisfied with the return or the payment of the tax required to be paid, the department may issue a deficiency assessment to the partnership under section 42-1108.

D. If the partnership incorrectly reported the adjustments under subsection A of this section that resulted in:

1. An understatement of the distribution of Arizona taxable income to the partners under subsection B, paragraph 2 of this section, the partnership shall pay the tax on the understatement by applying the calculation in subsection B, paragraph 1 of this section to the unreported adjustments.

2. An overstatement of Arizona taxable income, any adjustment shall be handled as follows:

(a) If the adjustments were originally passed through to the partners under subsection B, paragraph 2 of this section, the adjustment shall be passed through to the partners. The partnership shall amend the return under subsection A of this section and amend the statements provided to the partners and the department under subsection B, paragraph 2 of this section.

(b) If the tax on the adjustments was originally paid by the partnership pursuant to subsection B, paragraph 1 of this section, the partnership shall amend the return filed pursuant to subsection B, paragraph 1 of this section to claim any refund. This subdivision does not allow a partnership to claim a refund for amounts not actually paid by the partnership.

E. For the purposes of this section:

1. " Arizona share of the adjustments" means the adjustments determined in subsection A of this section, subject to the allocation and apportionment provisions of chapter 11, article 4 of this title.

2. " Final determination" has the same meaning prescribed in section 43-327.

3. " Reviewed year" means the partnership taxable year to which the items adjusted by the internal revenue service relate.