Reporting federal audit changes for partnerships under the Bipartisan Budget Act of 2015 (BBA)

Regardless of the option chosen for payment to the Internal Revenue Service (IRS) under the BBA, when a federal audit of a partnership is finalized, or when a partnership files an administrative adjustment request (AAR) with the IRS, partnerships, and their partners with filing requirements in New York State, must file amended returns for the reviewed year or the year adjusted by the AAR, unless the partnership makes the New York election for alternative payment by the partnership.

Unless the partnership makes the New York election for alternative payment by the partnership, the federal changes must be reported on amended returns. Within 90 days of the final federal determination date or the filing of an AAR, the partnership must: 

• File an amended Form IT-204, Partnership Return, for the reviewed year or the year adjusted by the AAR. 

• Attach the following federal forms, as applicable, to the amended partnership return: 
  • Copies of amended federal returns and attachments, such as amended Schedule K-1s 
  • Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request (AAR) 
  • Form 8986, Partner’s Share of Adjustment(s) to Partnership-Related Item(s) 
  • Form 8988, Election for Alternative to Payment of the Imputed Underpayment 
  • Form 15027, Partnership Summary of Approved Modifications and the Imputed Underpayments 
  • Form 886A, Explanation of items 
• File the following amended forms with New York State for the reviewed year or the year adjusted by the AAR and provide a copy to all direct partners, as applicable: 
  •  Form IT-204-IP, New York Partner’s Schedule K-1 
  • Form IT-204-CP, New York Corporate Partner’s Schedule K-1 
  • Form IT-204.1, New York Corporate Partners’ Schedule K 
• File an amended IT-203-GR, Group Return for Nonresident Partners if the partnership originally filed Form IT-203-GR and remit any additional tax that would have been due if the final federal adjustments had been reported on the original return.

Partnerships are also required to file a federal adjustments report with New York State. At this time, filing the amended forms listed above, together with the required attachments, will constitute the filing of a federal adjustments report for New York State purposes. 

Due Date Exception: If the final federal determination date or the date the AAR was filed, occurred prior to May 9, 2025, the partnership has until May 11, 2026, to report the federal changes to New York State. 

Within 90 days of the final federal determination or filing of an AAR, the partners should receive amended Schedule K-1s reporting their share of the partnership adjustments. 

Within 180 days of the final federal determination date or filing of an AAR, the partners of the partnership must: 

Individual partners 

• File Form IT-201-X, Amended Resident Income Tax Return, or IT-203-X, Amended Nonresident and Part-Year Resident Income Tax Return
• When filing, check line 83n on Form IT-201-X, or line 75n on Form IT-203-X, to indicate that the reason for filing the amended return is “Other” and in the explanation line, write BBA partnership.

Corporate partners 

• File Form CT-3, General Business Corporation Franchise Tax Return, or Form CT-33, Life Insurance Corporation Franchise Tax Return for the reviewed year; or
• File Forms CT-3-A, General Business Corporation Combined Franchise Tax Return or CT-33-A, Life Insurance Corporation Combined Franchise Tax Return if a combined group) for the reviewed year.
• When filing, check the "amended return" box in the header, and complete the amended return information sections, if applicable.

Tiered partners (partners that are flow-through entities) 

Tiered partners must file amended returns and report the federal changes to their own partners, members, or shareholders, using the instructions above, unless they make their own New York election for alternative payment by the partnership. 

Partnerships may elect to make an alternative payment by the partnership in lieu of filing an amended return. 

The tax due using this election is the sum of the following: 

• Corporate partners - the distributive share of corporate partners’ amounts, apportioned to New York State at the partnership level, using corporate apportionment rules, multiplied by the highest corporate tax rate in effect under Article 9-A for the reviewed year.
  • To determine the amount to be apportioned to New York State, the partnership must compute a partnership-level business apportionment factor in the same manner as outlined in Form CT-3, Part 6 – Calculation of business apportionment factor.

• New York State resident individual partners - the distributive share of resident individual partners’ gross income, gain, and deduction multiplied by the highest personal income tax rate in effect for the reviewed year. 

• New York State nonresident individual partners - the distributive share of nonresident individual partners’ gross income, gain, and deduction, apportioned to New York State using the personal income tax apportionment rules, multiplied by the highest personal income tax rate in effect for the reviewed year. 

• New York City resident individual partners - in addition to the amount computed for New York State resident individual partners above, the distributive share of the partner’s gross income, gain, and deduction multiplied by the highest New York City personal income tax rate in effect for the reviewed year.

• Tiered partners - determine the total tax amount using the rules above that would apply to the distributive share of gross income, gain, and deduction that would ultimately flow to corporate partners, nonresident individual partners, and resident individual partners.

Note: Any amount of gross income, gain, and deduction that cannot be established as allocable to a corporate or New York State nonresident individual partner must be calculated using the highest New York State personal income tax rate in effect for the reviewed year.

• Any applicable penalty and interest.

A partnership must notify New York State within 90 days after the final federal determination date. 

To make the alternative payment by the partnership election, the New York partnership representative must:

• E-mail: Flow.through.unit.fam@tax.ny.gov

Or

• Write to:
  NYS Department of Tax and Finance
  Income Franchise Field Audit Management - Flow-Through Unit
  WA Harriman Campus, Building 9, Room 350 
  Albany, NY 12227

A member of the Field Audit Management team will work through the process with the partnership representative.

The Tax Law allows a partnership, or a tiered partner, to apply to the Commissioner and request a modified reporting and payment method. The partnership or tiered partner must demonstrate that the requested method will reasonably provide for the reporting of any taxes, interest, and penalties due. The application must be made by the partnership representative using the same procedure and under the same timeframe for making the New York election for alternative payment by the partnership.