Amends and adds to existing law to revise provisions regarding the taxation of partnership income.

This legislation deals with tax audits of partnerships, subchapter S corporations and other pass through entities. These entities do not directly pay income taxes. Rather, each entity calculates the income, deductions and credits associated with its business activities for its partners/shareholders/members and provides a K-1 to each one. The responsibility for filing and paying taxes associated with the K-1 passes through from the entity to the partners/shareholders/members who include the K-1 information in filing their own tax returns. If there is an error in the calculations contained in the K-1, traditionally a taxing authority such as the IRS or the State Tax Commission has to adjust the income, deductions and credits for each individual taxpayer, a process that can require many audits of the taxpayers who are the partners/shareholders/members. The IRS has adopted a process to audit the entity itself for large pass through entities with more than one hundred partners/shareholders/members and other entities that elect to have the audit done at the entity level, have the entity itself pay any deficiency or receive any refund necessary to adjust to the error and pass those results back to their partners/shareholders/members. Through this legislation, Idaho would adopt a similar mechanism to coordinate with IRS adjustments of partnerships that use the entity level audit process. This avoids the multiple audit problem and should be a significant savings of time, money and headaches for both the taxpayer and the tax collector.