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Federal Adjustments for Partnerships
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Partnerships Audited by the IRS or Administrative Adjustment Requests
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Partnerships may be audited by the IRS under the federal partnership audit regime enacted within Bipartisan Budget Act of 2015 (BBA). Minnesota’s reporting and payment requirements for the partnership and partners depend on:
- If the partnership elects to pay their Minnesota tax liability at the partnership level using the Partnership Pays election
- The reviewed year of the adjustments
Partnerships Making the Partnership Pays Election
Partnerships use Schedule M3BBA, Partnership Audit Report, to file a federal adjustments report and make the Partnership Pays election.
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No later than 90 days after the final determination date of the federal audit change, your partnership must:
- File Form M3X, Amended Partnership Return, and Schedule M3BBA
- Include a copy of the federal partnership audit report (federal Form 15027 and Form 886‐A) as an attachment to Schedule M3BBA
Your partnership must pay the partnership-level tax no later than 180 days after the final determination date.
Use our forms search to find any forms or schedules needed to report your adjustments.
Your partnership must:
- Complete the 2021 Schedule M3BBA and file it with the appropriate reviewed year’s Form M3X, Amended Partnership Return
- Write “BBA Partnership” in red at the top of the Form M3X
- Report any change in tax from line 38 of Schedule M3BBA to line 2, column C of Form M3X
- Next to line 2, write “Schedule M3BBA”
Use our forms search to find any forms or schedules needed to report your adjustments.
This election allows partnerships to report and pay the Minnesota income tax, penalty, and interest resulting from a federal BBA centralized partnership audit change on their partners’ behalf.
This relieves the partner from filing a return to report their pro rata share of the federal adjustments, unless a partner is excluded from the calculation by Minnesota Statutes, section 289A.382, subdivision 3(a)(2)(i)-(ii).
Who may make the election?
The partnership or each tiered partner may make this election.
Partnerships may not make the election to report:
- The federal adjustment that results in unitary business income to a corporate partner required to file as a member of a combined report
- Any final federal adjustments resulting from an administrative adjustment request
- If your partnership is not otherwise subject to any reporting or payment obligations to Minnesota
Partnerships Not Making the Partnership Pays Election or Have an Administrative Adjustment Request (AAR)
Partnerships and each of their partners must file amended Minnesota returns for the applicable years and report their pro rata share of the federal adjustments.
No later than 90 days after the final determination date, your partnership must:
- File Form M3X, Amended Partnership Return, and include the following:
- The applicable federal form:
- A copy of the federal partnership audit report (federal Form 15027 and Form 886‐A) or
- A copy of the federal administrative adjustment request and Form 8985
- Pro-forma amended federal Form 1065 and Schedules K-1 for direct partners
- Amended Schedules KPI and KPC for direct partners
- Any amended composite reporting and payment for all direct partners who were included in composite tax in the reviewed year
- Any amended nonresident withholding reporting and payment for all direct partners who were subject to nonresident withholding under Minnesota Statutes, section 290.92, subdivision 4b in the reviewed year
- Any amended Schedule PTE and payment for any additional PTE tax if the electing partnership elected the pass-through entity tax on their original return filing
- Notify each direct partner of their distributive share of the final federal adjustments by providing each direct partner their applicable pro-forma Schedule K-1 and amended Schedule KPI or KPC
No later than 180 days after the final determination date, each direct partner, other than a tiered partner, must:
- Use the pro-forma Schedule K-1 and amended Schedule KPI or KPC received from the partnership or tiered partner to generate a pro-forma amended federal return and amended Minnesota income tax return
- File the amended Minnesota income tax return and pay any tax due
When a tiered partner receives a pro-forma Schedule K-1 and amended Schedule KPC from the partnership, the tiered partner may elect to pay at the partnership level, or they must report the adjustments as described under Partnership Not Making the Partnership Pays Election section.
State Partnership Representative Designation
If the state partnership representative designation is not completed, the state partnership representative will be the same person as the partnership’s federal partnership representative.
The state partnership representative has the sole authority to act on behalf of the partnership, and its partners are bound by those actions.
To designate a person other than your federal partnership representative, complete the State Partnership Representative Designation on page 4 of Schedule M3BBA.
Enter the partnership’s name, federal ID number, and Minnesota Tax ID number.
Enter the designated state partnership representative’s name, address, phone number, taxpayer identification number, and email address.
The designation must be signed and dated by someone with legal authority to sign agreements on behalf of your partnership.
An owner, officer, authorized agent of the partnership, or the designee must send the department a signed and dated statement ending the designee’s authority and designating a new designee or stating that the federal partnership representative is designated.
If your partnership makes the partnership pays election on Schedule M3BBA, Partnership Audit Report, include the designation with Schedule M3BBA.
For all other partnership designations and any revocations of previous designations, send to:
Minnesota Department of Revenue
Partnership Tax
Mail Station 5170
600 N. Robert St.
St. Paul, MN 55146-5170
What happens if I do not report adjustments?
If a partnership or partner fails to report a federal change or adjustment of tax, we may recompute the tax based on available information within six years from when the partnership or partner should have reported the federal adjustments. All applicable penalties and interest will be applied, including a 10% penalty for failure to report federal changes.
For information about reporting your adjustments, visit Reporting Federal Changes for Businesses, Estates, and Trusts.