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

LEGISLATURE OF THE STATE OF IDAHO Sixty-eighth Legislature Second Regular Session - 2026 IN THE HOUSE OF REPRESENTATIVES HOUSE BILL NO. 733 BY REVENUE AND TAXATION COMMITTEE AN ACT1 RELATING TO TAXATION; AMENDING SECTION 63-3026B, IDAHO CODE, TO REVISE A2 PROVISION REGARDING THE TIME FOR THE FILING OF AN ELECTION AS AN AF-3 FECTED BUSINESS ENTITY AND TO MAKE TECHNICAL CORRECTIONS; AMENDING4 SECTION 63-3068, IDAHO CODE, TO REVISE PROVISIONS REGARDING THE PERIOD5 OF LIMITATIONS FOR ISSUING A NOTICE OF DEFICIENCY AND COLLECTION OF TAX;6 AMENDING SECTION 63-3069, IDAHO CODE, TO REVISE PROVISIONS REGARDING7 NOTICE OF ADJUSTMENT OF FEDERAL OR STATE TAX LIABILITY; AMENDING CHAP-8 TER 30, TITLE 63, IDAHO CODE, BY THE ADDITION OF A NEW SECTION 63-3070,9 IDAHO CODE, TO ESTABLISH PROVISIONS REGARDING PARTNERSHIP INCOME AND10 FEDERAL ADJUSTMENTS; AMENDING SECTION 63-3072, IDAHO CODE, TO REVISE11 PROVISIONS REGARDING CERTAIN TIME PERIODS FOR DETERMINATION OF CREDITS12 OR REFUNDS OF IDAHO INCOME TAXES; AND DECLARING AN EMERGENCY AND PROVID-13 ING AN EFFECTIVE DATE.14

Be It Enacted by the Legislature of the State of Idaho:15

SECTION 1. That Section 63-3026B, Idaho Code, be, and the same is hereby16 amended to read as follows:17 63-3026B. AFFECTED BUSINESS ENTITIES -- STATE AND LOCAL TAXATION18 TREATMENT. (1) As used in this section:19 (a) "Affected business entity" means any partnership or S corporation20 that elects to be subject to tax pursuant to this section.21 (b) "Affected business entity income" means, in the case of an electing22 affected business entity, all items of income, gain, loss, or deduction23 derived from or connected with Idaho sources, except for that portion of24 such income, gain, loss, or deduction apportioned to an exempt entity25 that is a member of the affected business entity.26 (c) "Exempt entity" means an entity that is exempt from taxation under27 this chapter.28 (d) "Individual" means an individual, a trust, or an estate.29 (e) "Member" means:30 (i) A shareholder of an S corporation, except for exempt enti-31 ties;32 (ii) A partner in a general partnership, a limited partnership, or33 a limited liability partnership, except for exempt entities; or34 (iii) A member of a limited liability company that is treated as a35 partnership or an S corporation for federal income tax purposes,36 except for exempt entities.37 (f) "Partnership" has the meaning provided in section 63-3006B, Idaho38 Code. "Partnership" includes a limited liability company that is39 treated as a partnership for federal income tax purposes as described in40 section 63-3006A, Idaho Code.41

2 (g) "S corporation" means a corporation or limited liability company1 that is treated as an S corporation for federal income tax purposes.2 (h) "Taxable year" means the taxable year of a partnership or an S cor-3 poration for federal income tax purposes.4 (2)(a) A partnership or an S corporation may elect in the manner set5 forth in this section to become an affected business entity required to6 pay the tax under this section in any taxable year. A separate election7 must be made for each taxable year.8 (b) An election under this section must be made on a form and in the man-9 ner as the state tax commission prescribes by rule or instruction.10 (c) An election under this section may be made for any taxable year by11 filing the election with a timely filed original return for such taxable12 year. An election will also be valid if made by an amended return for the13 taxable year filed before the original due date of the fifteenth day of14 the fourth month following the taxable year.15 (d) An election made under this section must be signed by:16 (i) Each member of the electing entity who is a member at the time17 the election is filed; or18 (ii) Any officer, manager, or member of the electing entity who is19 authorized under local law or by the entity's organizational docu-20 ments to make the election and who represents under penalty of per-21 jury that he has such authorization.22 (e) An affected business entity is required to pay the tax imposed by23 section 63-3082, Idaho Code, for each member that is not an Idaho resi-24 dent.25 (3) Each affected business entity that is a partnership or an S corpora-26 tion transacting business in this state shall, on or before the fifteenth day27 of the fourth month following the close of each taxable year, pay a tax in an28 amount determined as follows:29 (a) Add all of the affected business entity income derived from or con-30 nected with sources within this state, as determined under the provi-31 sions of this chapter;32 (b) Increase or decrease the sum from paragraph (a) of this subsection33 according to the modifications permitted or required under this chapter34 for computing Idaho taxable income, to the extent they are attributable35 to members subject to tax under this chapter;36 (c) Multiply the result from paragraph (b) of this subsection by the37 tax rate applicable to corporations provided in section 63-3025, Idaho38 Code; and39 (d) Apply any allowable credits earned by the affected business entity,40 adjusted by the recapture provisions of section 63-3029B, Idaho Code.41 All credits, including the allowable credits under this section from42 another affected business entity as adjusted for the recapture provi-43 sions of section 63-3029B, Idaho Code, shall flow through to the members44 as otherwise permitted under this chapter. Any unused credits that are45 allowed by law to be carried forward to succeeding taxable years may be46 claimed in succeeding taxable years for which the affected business en-47 tity elects to be subject to tax pursuant to this section. If the af-48 fected business entity does not make the election under this section in49

3 any succeeding taxable year, the unused credits will flow through to the1 members as otherwise permitted under this chapter.2 (4) If the amount calculated under subsection (3)(b) of this section3 results in a net operating loss, such net operating loss may not be passed4 through to the members of the affected business entity that makes the elec-5 tion under this section but may be carried forward to succeeding taxable6 years for which the affected business entity elects to be subject to tax7 pursuant to this section until fully used. If the affected business entity8 does not make the election under this section in any succeeding taxable year,9 the unused net operating loss will flow through to the members as otherwise10 permitted under this chapter.11 (5) A nonresident individual who is a member is not required to file an12 income tax return under section 63-3030, Idaho Code, for any taxable year in13 which the only source of income derived from or connected with sources within14 this state for such member, or the member and the member's spouse if a joint15 federal income tax return is or shall be filed, is from one (1) or more af-16 fected business entities and such affected business entity or entities file17 and pay the tax due under this section.18 (6) Each partnership and S corporation shall report to each of its mem-19 bers, for each taxable year, such member's pro rata share of the tax imposed20 under this section on such partnership or S corporation if it is an affected21 business entity. Such pro rata share of the tax shall be calculated by ex-22 cluding the share of any member that is an exempt entity.23 (7)(a) Each individual who is a member and is not an exempt entity is24 entitled to a credit against such tax. The credit will be in an amount25 equal to the individual's pro rata share of the tax paid under this26 section by any affected business entity of which the individual is a27 member. If the amount of the credit allowed pursuant to this paragraph28 exceeds the individual's tax liability for the tax imposed under this29 chapter, the individual will be paid a refund equal to the balance of the30 unused credit. Such pro rata share of the tax credit shall be calculated31 by excluding the share of any member that is an exempt entity.32 (b) Each individual who is a member and is not an exempt entity, as a33 resident or a part-year resident of this state, is entitled to a credit34 against such tax for the individual's pro rata share of taxes paid to an-35 other state of the United States or the District of Columbia on income36 of any partnership or S corporation of which the individual is a mem-37 ber that is derived therefrom. Any such credit will be calculated in the38 manner prescribed by the state tax commission and shall be consistent39 with the provisions of section 63-3029, Idaho Code. Such pro rata share40 of the tax credit shall be calculated by excluding the share of any mem-41 ber that is an exempt entity.42 (8) Each corporation that is a member and is subject to the tax im-43 posed under section 63-3025 or 63-3025A, Idaho Code, is entitled to a credit44 against such tax. The credit will be in an amount equal to the corporation's45 pro rata share of the tax paid under this section by any affected business46 entity of which the corporation is a member. Such credit will be applied47 after all other applicable credits have been applied. Any balance of the48 credit not used in the taxable year during which the corporation reports the49 net income from such affected business entities will be paid as a refund to50

4 the corporation. Such pro rata share of the tax credit shall be calculated by1 excluding the share of any member that is an exempt entity.2 (9) Each affected business entity that is a member of another affected3 business entity and elects to be subject to the tax imposed under this sec-4 tion is entitled to a credit against such tax. The credit will be in an amount5 equal to the affected business entity's pro rata share of the tax paid under6 this section by any affected business entity of which the affected business7 entity is a member. Such credit will be applied after all other applicable8 credits have been applied. Any balance of the credit not used in the tax-9 able year during which the affected business entity reports net income will10 be paid as a refund to the affected business entity. Such pro rata share of11 the tax credit shall be calculated by excluding the share of any member that12 is an exempt entity.13 (10) Each pass-through entity, as defined in section 63-3006C, Idaho14 Code, that is a member of an affected business entity and does not elect to15 be subject to the tax imposed under this section is entitled to a credit.16 The credit will be in an amount equal to the pass-through entity's pro rata17 share of the tax paid under this section by any affected business entity of18 which the pass-through entity is a member. Such credit will be applied af-19 ter all other applicable taxes and credits have been applied. Any balance20 of the credit not used in the taxable year will be paid as a refund to the21 pass-through entity.22 (11) For trusts and estates that distribute their income to their bene-23 ficiaries to be reported by and taxed to said beneficiaries, the credit pro-24 vided in subsection (7)(a) of this section shall be apportioned between the25 trust or estate and the beneficiaries in the same proportion as the income is26 allocated to and reported by the trust or estate and the beneficiaries.27 (12) The penalty and interest and penalty provisions and the collection28 and enforcement procedures provided by sections 63-3038 through 63-3040,29 63-3042 through 63-3065A, 63-3071, 63-3075, and 63-3078, Idaho Code, shall30 apply and be available to the state tax commission for enforcement of the31 provisions of this section and collection of any amounts due under this32 section. Said sections shall, for this purpose, be considered part of this33 section, and wherever liens or any other proceedings are defined as income34 tax liens or proceedings, they shall, when applied in enforcement or collec-35 tion under this section, be described as affected business entity tax liens36 and proceedings.37

SECTION 2. That Section 63-3068, Idaho Code, be, and the same is hereby38 amended to read as follows:39 63-3068. PERIOD OF LIMITATIONS FOR ISSUING A NOTICE OF DEFICIENCY AND40 COLLECTION OF TAX. (a) Except as otherwise provided in this section, a notice41 of deficiency, as provided in section 63-3045, Idaho Code, for the tax im-42 posed in this chapter shall be issued within three (3) years from either the43 due date of the return, without regard to extensions, or from the date the re-44 turn was filed, whichever is later.45 (b) If an assessment has been made as provided in this chapter, then46 such tax shall be collected either by levy, or by a proceeding brought in47 court, within a period of twelve (12) years from the date of entry of the48 record of assessment required by section 63-3045A, Idaho Code, of the tax and49

5 provided, further, that this shall not be in derogation of any of the reme-1 dies elsewhere provided in this chapter.2 (c) In the case of a fraudulent return or a false return with the intent3 to evade the tax imposed in this chapter, or a willful attempt in any manner4 to defeat or evade the tax imposed in this chapter, a notice of deficiency may5 be issued, the tax may be assessed, or a proceeding in court for collection of6 such tax may be begun without assessment, at any time.7 (d) In the case of a failure to file a return, for any reason, a notice8 of deficiency may be issued, the tax imposed in this chapter may be assessed,9 or a proceeding in court for collection of such tax may be begun without as-10 sessment, at any time, unless the taxpayer had a reasonable belief that no11 return was required to be filed under this chapter, in which case any defi-12 ciency, assessment, or proceeding for collection of such tax shall be com-13 menced within three (3) years of the time the return was due.14 (e) In the case of income received during the lifetime of a decedent,15 or by his estate during the period of administration, a notice of deficiency16 shall be issued, a claim shall be made, the tax shall be assessed or any pro-17 ceeding in court without assessment for the collection of such tax shall be18 begun, within twelve (12) months after written request for prompt action is19 filed with the state tax commission by the executor, administrator, or other20 fiduciary representing the estate of such decedent. This subsection shall21 not apply if the return for which the request for prompt action relates has22 not been filed with the state tax commission.23 (f) When Idaho taxable income or tax credits for any taxable year have24 been adjusted as a result of a final federal determination adjustment, the25 period of limitation for issuing a notice of deficiency shall be reopened and26 shall not expire until the later of one (1) year from the date of delivery27 of the final federal determination to the state tax commission by the tax-28 payer, date, three (3) years from the due date of the return, without regard29 to extensions, or three (3) years from the date the return was filed. For30 purposes of this subsection section the term "final federal determination31 adjustment" shall mean the final resolution of all issues which were ad-32 justed by the internal revenue service shall have the same meaning as that33 term is defined in section 63-3070(2)(i), Idaho Code, and "final determi-34 nation date" shall have the same meaning as that term is defined in section35 63-3070(2)(h), Idaho Code. When the final federal determination adjustment36 is submitted, the taxpayer shall also submit copies of all schedules and37 written explanations provided by the internal revenue service. Upon the38 expiration of the period of limitations as provided in subsections (a) and39 (m) of this section, only those specific items of income, deductions, gains,40 losses, or credits which were adjusted in the final federal determination41 adjustment shall be subject to adjustment for purposes of recomputing Idaho42 income, deductions, gains, losses, credits, and the effect of such adjust-43 ments on Idaho allocations and apportionments.44 (g) If an adjustment, which was made within the period of limitations45 as provided in this section, affects the amount of tax credit, net operating46 loss, or capital loss, claimed in a taxable year other than the tax year in47 which the adjustment is made, then adjustments to the credit, net operating48 loss, or capital loss claimed in such other tax year may be made and a result-49

6 ing notice of deficiency may be issued even though such notice of deficiency1 would otherwise be barred under the provisions of this section.2 (h) Notwithstanding any other provisions of this section, when an3 amended Idaho return is filed within the period of limitations as provided in4 subsections (a) and (m) of this section, the period of limitations for issu-5 ing a notice of deficiency shall be three (3) years from the date the amended6 return was filed. However, upon the expiration of the period of limitations7 as provided in subsections (a) and (m) of this section, only those specific8 items of income, deductions, gains, losses, or credits, which were adjusted9 in the amended Idaho return shall be subject to adjustment for purposes of10 recomputing Idaho income, deductions, gains, losses, credits, and the ef-11 fect of such adjustments on Idaho allocations and apportionments.12 (i) If a taxpayer has filed an amended federal return, and no corre-13 sponding Idaho amended return has been filed with the state tax commission,14 then the period of limitations for issuing a notice of deficiency shall be15 reopened and shall not expire until three (3) years from the date of deliv-16 ery to the tax commission by the taxpayer of the amended federal return. How-17 ever, upon the expiration of the period of limitations as provided in subsec-18 tions (a) and (m) of this section, then only those specific items of income,19 deductions, gains, losses, or credits, which were adjusted in the amended20 federal return shall be subject to adjustment for purposes of recomputing21 Idaho income, deductions, gains, losses, credits, and the effect of such ad-22 justments on Idaho allocations and apportionments.23 (j) Notwithstanding any other provisions of this section, a notice of24 deficiency, related to items on the return of any pass-through entity, as de-25 fined in this section, which other taxpayers are required by law to report,26 shall be issued to such other taxpayers within the later of three (3) years27 from the due date of the other taxpayers' return, without regard to exten-28 sions, three (3) years from the date the other taxpayers' returns were filed,29 or three (3) years from the date of filing of the pass-through entity's re-30 turn. If the pass-through entity files an amended return, notices of defi-31 ciency may be issued to the other taxpayers within three (3) years from the32 date the amended return for the pass-through entity was filed with the state33 tax commission. If the pass-through entity files an amended return with the34 internal revenue service, or the internal revenue service issues a final de-35 termination to the pass-through entity, then the period of limitations for36 issuing a notice of deficiency to the other taxpayers shall be reopened and37 shall not expire until three (3) years from the date of delivery to the tax38 commission by the pass-through entity of the amended federal return or the39 later of one (1) year from the date of delivery to the state tax commission40 by the pass-through entity of the final federal determination adjustment,41 three (3) years from the due date of the pass-through entity's return, with-42 out regard to extensions, or three (3) years from the date the pass-through43 entity's return was filed.44 (k) For purposes of this section, "pass-through entity" means a part-45 nership, S corporation, trust, limited liability company or any other en-46 tity whose items of income, deductions, gains, losses and credits must be re-47 ported by other taxpayer(s). For further purposes of this section, the term48 "other taxpayer" shall include, by way of unlimiting example, such taxpayers49 as partners, shareholders, beneficiaries, joint venturers or investors.50

7 (l) In the case of a duplicate return filed under section 63-217(1)(b),1 Idaho Code, the limitation under this section shall be the later of one (1)2 year from the filing of the duplicate return or the date otherwise applicable3 under this section.4 (m) Prior to the expiration of the time prescribed in this section for5 the issuance of a notice of deficiency for the tax imposed in this chapter,6 both the state tax commission, its delegate or deputy, and the taxpayer may7 consent in writing to extend the period of time within which a notice of defi-8 ciency may be issued. The period so agreed upon may be extended by subsequent9 agreements in writing made before the expiration of the period previously10 agreed upon. When a pass-through entity extends the period of limitations11 in accordance with this subsection, the period of limitations for the other12 taxpayers is automatically extended for the same period for the purpose of13 issuing a notice of deficiency to the other taxpayers reflecting the adjust-14 ments to the pass-through entity's return.15 (n) The expiration of the period of limitations as provided in this sec-16 tion shall be suspended for the time period during which the state tax com-17 mission is prohibited from issuing a notice of deficiency, making the as-18 sessment, or from collecting by levy or a proceeding in court, and for thirty19 (30) days thereafter.20 (o) For the purposes of this section, "return" includes a notice of de-21 ficiency determination issued by the state tax commission when no return was22 filed by the taxpayer. Such a return is deemed filed on the date the taxes de-23 termined by the state tax commission are assessed.24

SECTION 3. That Section 63-3069, Idaho Code, be, and the same is hereby25 amended to read as follows:26 63-3069. NOTICE OF ADJUSTMENT OF FEDERAL OR STATE TAX LIABILITY. (1)27 Upon final determination of any deficiency or refund of federal taxes, the28 taxpayer is required to send written notice to the state tax commission29 within one hundred twenty (120) one hundred eighty (180) days of the final30 determination date.31 (2) Upon final determination of any deficiency or refund of income tax32 due to another state or territory to which the credit for taxes paid another33 state or territory applies, as provided in section 63-3029, Idaho Code,34 the taxpayer is required to send written notice to the state tax commission35 within one hundred twenty (120) one hundred eighty (180) days of the final36 determination date.37 (3) If the notice required by this section is not sent by the taxpayer to38 the state tax commission within one hundred twenty (120) one hundred eighty39 (180) days of the final determination date, the taxpayer will be subject to40 the negligence penalty provided by section 63-3046, Idaho Code.41 (4) As used in this section, "final determination date" has the same42 meaning as that term is defined in section 63-3070(2)(h), Idaho Code.43 (5) A taxpayer subject to a federal audit is eligible to make estimated44 payments to the state tax commission in the same manner as provided in sec-45 tion 63-3070(6), Idaho Code.46

8

SECTION 4. That Chapter 30, Title 63, Idaho Code, be, and the same is1 hereby amended by the addition thereto of a NEW SECTION, to be known and des-2 ignated as Section 63-3070, Idaho Code, and to read as follows:3 63-3070. PARTNERSHIP INCOME -- FEDERAL ADJUSTMENTS. (1) The defini-4 tions set forth in this chapter shall apply to this section unless modified5 in this section or unless the context clearly requires another definition.6 (2) As used in this section:7 (a) "Administrative adjustment request" means a request for an admin-8 istrative adjustment filed by a partnership under section 6227 of the9 Internal Revenue Code.10 (b) "Audited partnership" means a partnership subject to a partner-11 ship-level audit resulting in a federal adjustment.12 (c) "Corporate partner" means a partner subject to tax under section13 63-3025 or 63-3025A, Idaho Code.14 (d) "Direct partner" means a partner that holds an interest directly in15 a partnership or pass-through entity.16 (e) "Exempt partner" means a partner that is exempt from taxation under17 this chapter except on unrelated business taxable income.18 (f) "Federal adjustment" means a change to an item or amount determined19 by the Internal Revenue Code that is used by a taxpayer to compute Idaho20 state income tax owed, whether that change results from action by the21 internal revenue service, including a partnership-level audit, or from22 the filing of an amended federal return, a federal refund claim, or an23 administrative adjustment request by the taxpayer.24 (g) "Federal partnership representative" means the person the partner-25 ship designates for the taxable year as the partnership's representa-26 tive or the person the internal revenue service has appointed to act as27 the federal partnership representative pursuant to section 6223(a) of28 the Internal Revenue Code.29 (h) "Final determination date" means the following:30 (i) Except as provided in subparagraphs (ii) and (iii) of this31 paragraph, if the federal adjustment arises from an internal rev-32 enue service audit or other action by the internal revenue ser-33 vice, the final determination date is the first day on which no34 federal adjustments arising from that audit or other action remain35 to be finally determined, whether by internal revenue service de-36 cision with respect to which all rights of appeal have been waived37 or exhausted, by agreement, or, if appealed or contested, by a fi-38 nal decision with respect to which all rights of appeal have been39 waived or exhausted. For agreements required to be signed by a40 representative of the internal revenue service and the taxpayer,41 the final determination date is the date on which the last party42 signed the agreement.43 (ii) For federal adjustments arising from an internal revenue44 service audit or other action by the internal revenue service, if45 the taxpayer filed as a member of a combined report or consolidated46 return under Idaho law, the final determination date is the first47 day on which no related federal adjustments arising from such au-48

9 dit remain to be finally determined, as described in subparagraph1 (i) of this paragraph for the entire group.2 (iii) If the federal adjustment results from filing an amended3 federal return, a federal refund claim, or an administrative ad-4 justment request, or if it is a federal adjustment reported on an5 amended federal return or other similar report filed pursuant to6 section 6225 (c) of the Internal Revenue Code, the final determi-7 nation date is the day on which the amended return, refund claim,8 administrative adjustment request, or other similar report was9 filed.10 (i) "Final federal adjustment" means a federal adjustment that can no11 longer be modified because the final determination date for that fed-12 eral adjustment has passed.13 (j) "Indirect partner" means a partner in a partnership or pass-through14 entity that itself holds an interest directly or through another indi-15 rect partner in a partnership or pass-through entity.16 (k) "Nonresident partner" means an individual, trust, or estate part-17 ner that is not a resident partner.18 (l) "Partner" means a person that holds an interest directly or indi-19 rectly in a partnership or other pass-through entity.20 (m) "Partnership-level audit" means an examination by the internal21 revenue service at the partnership level pursuant to sections 622122 through 6241 of the Internal Revenue Code, as amended by P.L. 114-74 and23 as in effect on November 2, 2015, that results in federal adjustments.24 (n) "Reallocation adjustment" means a federal adjustment resulting25 from a partnership-level audit or an administrative adjustment request26 that changes the share of one (1) or more items of partnership income,27 gain, loss, expense, or credit allocated to direct partners.28 (o) "Report of federal adjustments" means the taxpayer's report of fi-29 nal federal adjustments to the Idaho state tax commission, including an30 amended Idaho income tax return, information return, or a uniform mul-31 tistate report.32 (p) "Resident partner" means an individual, trust, or estate partner33 that is a resident in Idaho under section 63-3013, Idaho Code, for the34 relevant tax period.35 (q) "Reviewed year" means the taxable year of a partnership that is sub-36 ject to a partnership-level audit from which federal adjustments arise.37 (r) "Tiered partner" means any partner that is a partnership or pass-38 through entity.39 (s) "Unrelated business taxable income" has the same meaning as pro-40 vided in section 512(a) of the Internal Revenue Code.41 (3) Unless an election has been made pursuant to section 63-3026B,42 Idaho Code, a taxpayer shall report and pay any Idaho tax due with respect43 to final federal adjustments arising from an audit or other action by the44 internal revenue service or reported by the taxpayer on a timely filed45 amended federal income tax return, including a return or other similar re-46 port filed pursuant to section 6225(c)(2) of the Internal Revenue Code, or47 a federal claim for refund, by filing a report of federal adjustments with48 the state tax commission for the reviewed year and, if applicable, paying the49 additional Idaho tax owed by the taxpayer no later than one hundred eighty50

10 (180) days after the final determination date. This requirement shall not1 apply in the case of final federal adjustments required to be reported by a2 partnership and its partners using the procedures set forth in subsection3 (4) of this section and final federal adjustments required to be reported4 for federal purposes pursuant to section 6225(a)(2) of the Internal Revenue5 Code. If an election has been made pursuant to section 63-3026B, Idaho Code,6 the procedures and time frames set forth in this section shall apply to the7 electing partnership rather than the individual partners.8 (4) Except for adjustments required to be reported for federal pur-9 poses pursuant to section 6225(a)(2) of the Internal Revenue Code and the10 distributive share of adjustments that has been reported as required under11 subsection (3) of this section, partnerships and partners shall report final12 federal adjustments arising from a partnership-level audit or an adminis-13 trative adjustment request and make payments as follows:14 (a) A state partnership representative shall act on behalf of the part-15 nership as follows:16 (i) With respect to an action required or permitted to be taken by17 a partnership under this subsection, and a proceeding under sec-18 tion 63-3048, Idaho Code, with respect to that action, the state19 partnership representative for the reviewed year shall have the20 sole authority to act on behalf of the partnership. The partner-21 ship's direct partners and indirect partners shall be bound by22 those actions.23 (ii) The state partnership representative for the reviewed year24 is the partnership's federal partnership representative unless25 the partnership designates in writing another person as its state26 partnership representative.27 (iii) The state tax commission may establish reasonable quali-28 fications and procedures for designating a person other than the29 federal partnership representative to be the state partnership30 representative.31 (b) Final federal adjustments subject to the requirements of this sub-32 section, except for those subject to a properly made election pursuant33 to paragraph (c) of this subsection, shall be reported as follows:34 (i) No later than ninety (90) days after the final determination35 date, the partnership shall:36 1. File a completed report of federal adjustments, includ-37 ing information required by Idaho law, with the state tax38 commission;39 2. Notify each of its direct partners of their distributive40 share of the final federal adjustments, including informa-41 tion required by the state tax commission; and42 3. File an amended composite return for direct partners as43 required pursuant to section 63-3022L, Idaho Code, or an44 amended withholding return for direct partners as required45 pursuant to section 63-3035, Idaho Code, and pay the ad-46 ditional amount pursuant to sections 63-3024 and 63-3025,47 Idaho Code, that would have been due had the final federal48 adjustments been reported properly as required.49

11 (ii) Except as provided under section 63-3025, Idaho Code, no1 later than one hundred eighty (180) days after the final deter-2 mination date, each direct partner taxed pursuant to section3 63-3025, Idaho Code, shall:4 1. File a report of federal adjustments reporting its dis-5 tributive share of the adjustments reported under subpara-6 graph (i)2. of this paragraph, as required under section7 63-3069, Idaho Code; and8 2. Pay any additional amount of tax due as if the report of9 federal adjustments had been properly reported, plus any in-10 terest and penalty due under sections 63-3045, 63-3046, and11 63-3075, Idaho Code, and less any credit for related amounts12 paid or withheld and remitted on behalf of the direct partner13 under subparagraph (i)3. of this paragraph.14 (c)(i) Subject to the limitations provided in subparagraph (iii)15 of this paragraph, an audited partnership making an election un-16 der this paragraph shall, no later than ninety (90) days after the17 final determination date, file a completed report of federal ad-18 justments, including the information required by section 63-3069,19 Idaho Code, and notify the state tax commission that it is making20 the election under this subsection.21 (ii) Subject to the limitations provided in subparagraph (iii) of22 this paragraph, an audited partnership making an election under23 this paragraph shall, no later than one hundred eighty (180) days24 after the final determination date, pay, in lieu of taxes owed by25 its direct and indirect partners, an amount determined according26 to this subparagraph as follows:27 1. Exclude from final federal adjustments the distributive28 share of these adjustments reported to a direct exempt part-29 ner not subject to tax under section 63-3025, Idaho Code;30 2. For the total distributive shares of the remaining final31 federal adjustments reported to direct corporate partners32 subject to tax under section 63-3025, Idaho Code, and to di-33 rect exempt partners subject to tax under section 63-3025,34 Idaho Code, apportion and allocate such adjustments as35 provided in section 63-3027, Idaho Code, and multiply the36 resulting amount by the highest tax rate under section37 63-3024, Idaho Code;38 3. For the total distributive shares of the remaining final39 federal adjustments reported to nonresident direct partners40 subject to tax under section 63-3024, Idaho Code, determine41 the amount of the adjustments that is Idaho source income un-42 der section 63-3026A, Idaho Code, and multiply the resulting43 amount by the highest tax rate under section 63-3024, Idaho44 Code;45 4. For the total distributive shares of the remaining final46 federal adjustments reported to tiered partners:47 (A) Determine the amount of the adjustments of a type48 subject to sourcing to Idaho under section 63-3026A,49 Idaho Code, then determine the portion of this amount50

12 that would be sourced to Idaho by applying rules pro-1 mulgated by the state tax commission;2 (B) Determine the amount of the adjustments of a type3 not subject to sourcing to Idaho by a nonresident part-4 ner under section 63-3026A, Idaho Code;5 (C) Of the amount determined in subparagraph (ii)4.(A)6 and (B) of this paragraph, determine the portion that,7 pursuant to rules promulgated by the state tax commis-8 sion, is properly allocable to nonresident indirect9 partners or other partners not subject to tax on the10 adjustments or the portion that can be excluded un-11 der procedures for alternative reporting and payment12 method allowed under paragraph (e) of this subsection;13 5. Multiply the total of the amounts determined in subpara-14 graph (ii)4.(A) and (B) of this paragraph reduced by the15 amount determined in subparagraph (ii)4.(C) of this para-16 graph by the highest tax rate under section 63-3024, Idaho17 Code;18 6. For the total distributive shares of the remaining final19 federal adjustments reported to resident direct partners20 subject to tax under section 63-3024, Idaho Code, multiply21 that amount by the highest tax rate under section 63-3024,22 Idaho Code; and23 7. Add the amounts determined in subparagraph (ii)2.,24 3., 5., and 6. of this paragraph, along with interest25 and penalty as provided in sections 63-3045, 63-3046, and26 63-3075, Idaho Code.27 (iii) Final federal adjustments subject to this election ex-28 clude:29 1. The distributive share of final audit adjustments that30 under section 63-3027, Idaho Code, and rules promulgated by31 the state tax commission, must be included in the unitary32 business income of any direct or indirect corporate part-33 ner, provided it can be reasonably determined by the audited34 partnership; and35 2. Any final federal adjustments resulting from an adminis-36 trative adjustment request.37 (iv) An audited partnership not otherwise subject to any report-38 ing or payment obligation to the state of Idaho that makes an elec-39 tion under this subsection consents to be subject to Idaho laws re-40 lating to reporting, assessment, payment, and collection of Idaho41 tax calculated under the election.42 (d) The direct and indirect partners of an audited partnership that are43 tiered partners, and all of the partners of those tiered partners that44 are subject to tax under sections 63-3024 and 63-3025, Idaho Code, are45 subject to the reporting and payment requirements of paragraph (b) of46 this subsection, and the tiered partners are entitled to make the elec-47 tions provided in paragraphs (c) and (e) of this subsection. The tiered48 partners or their partners shall make the required reports and payments49 no later than ninety (90) days after the time for filing and furnishing50

13 statements to tiered partners and their partners as established under1 section 6226 of the Internal Revenue Code and the federal regulations2 thereunder. The state tax commission may promulgate rules to estab-3 lish procedures and interim time periods for the reports and payments4 required by tiered partners and their partners and for making the elec-5 tions under this subsection.6 (e) Under procedures adopted by the state tax commission, an audited7 partnership or tiered partner may enter into an agreement with the state8 tax commission to use an alternative reporting and payment method, in-9 cluding applicable time requirements or any other provision of this10 subsection, if the audited partnership or tiered partner demonstrates11 that the requested method will reasonably provide for the reporting and12 payment of taxes, penalties, and interest due under the provisions of13 this subsection. Application for approval of an alternative reporting14 and payment method must be made by the audited partnership or tiered15 partner within the time for election as provided in this paragraph or16 paragraph (c) of this subsection, as appropriate.17 (f)(i) The election made pursuant to paragraph (c) or (e) of this18 subsection is irrevocable unless the state tax commission, in its19 discretion, determines otherwise.20 (ii) If properly reported and paid by the audited partnership or21 tiered partner, or by a partnership that has filed an election un-22 der section 63-3026B, Idaho Code, the amount determined in para-23 graph (c)(ii) of this subsection, or similarly under an optional24 election under paragraph (e) of this subsection, will be treated25 as paid in lieu of taxes owed by its direct and indirect partners,26 to the extent applicable, on the same final federal adjustments.27 The direct partners or indirect partners may not take any deduc-28 tion or credit for this amount or claim a refund of the amount in29 this state. Nothing in this paragraph precludes a direct resident30 partner from claiming a credit against taxes paid to this state31 pursuant to section 63-3029, Idaho Code, for any amounts paid by32 the audited partnership or tiered partner on the resident part-33 ner's behalf to another state or local tax jurisdiction in accor-34 dance with the provisions of section 63-3029, Idaho Code.35 (g) Nothing in this section shall be construed to prevent the state36 tax commission from assessing direct partners or indirect partners for37 taxes they owe, using the best information available, in the event that38 a partnership or tiered partner fails for any reason to timely make any39 report or payment required by this section or by section 63-3026B, Idaho40 Code.41 (5) The state tax commission shall make adjustments as needed for any42 additional tax, interest, and penalties arising from final federal adjust-43 ments arising from an audit by the internal revenue service, including a44 partnership-level audit, or reported by the taxpayer on an amended federal45 income tax return or as part of an administrative adjustment request by the46 dates provided in this subsection.47 (a) If a taxpayer files with the state tax commission a report of fed-48 eral adjustments or an amended Idaho tax return as required within the49 period specified in subsection (3) or (4) of this section, the state50

14 tax commission may adjust any amounts, including in-lieu-of amounts,1 taxes, interest, and penalties arising from those federal adjustments2 if the state tax commission issues a notice of deficiency determination3 to the taxpayer no later than:4 (i) The expiration of the limitations period specified in section5 63-3068 or 63-3072, Idaho Code; or6 (ii) The expiration of the one (1) year period following the date7 of the filing with the state tax commission of the report of fed-8 eral adjustments.9 (b) If the taxpayer fails to file the report of federal adjustments10 within the period specified in subsection (3) or (4) of this section,11 as appropriate, or the report of federal adjustments filed by the tax-12 payer omits final federal adjustments or understates the correct amount13 of tax owed, the state tax commission may assess amounts or additional14 amounts, taxes, interest, and penalties arising from the report of fed-15 eral adjustments if it mails a notice of deficiency determination to the16 taxpayer by a date that is the latest of the following:17 (i) The expiration of the limitations period specified in section18 63-3068, Idaho Code;19 (ii) The expiration of the one (1) year period following the date20 the report of federal adjustments was filed with the state tax com-21 mission; or22 (iii) Absent fraud, the expiration of the six (6) year period fol-23 lowing the final federal determination date.24 (6) A taxpayer may make estimated payments to the state tax commission,25 following the process prescribed by the state tax commission, of Idaho tax26 expected to result from a pending internal revenue service audit prior to27 the due date of the report of federal adjustments without having to file the28 report with the state tax commission. The estimated tax payments shall be29 credited against any tax liability ultimately found to be due to Idaho and30 shall limit the accrual of further statutory interest on that amount. If the31 estimated tax payments exceed the final tax liability and statutory inter-32 est ultimately determined to be due, the taxpayer is entitled to a refund or33 credit for the excess, provided the taxpayer files a report of federal ad-34 justments claiming a refund or credit of tax pursuant to section 63-3072,35 Idaho Code, no later than one (1) year following the final federal determi-36 nation.37 (7)(a) Except for final federal adjustments required to be reported for38 federal purposes under section 6225(a)(2) of the Internal Revenue Code,39 a taxpayer may file a claim for refund or credit of tax arising from fed-40 eral adjustments made by the internal revenue service on or before the41 later of:42 (i) The expiration of the last day for filing a claim for refund43 or credit of Idaho tax pursuant to section 63-3072, Idaho Code, in-44 cluding any extensions; or45 (ii) One (1) year from the date a report of federal adjustments46 prescribed in subsection (3) or (4) of this section, as applica-47 ble, was due to the state tax commission, including any extensions48 pursuant to subsection (8) of this section.49

15 (b) The report of federal adjustments shall serve as the means for1 the taxpayer to report additional tax due, report a claim for refund2 or credit of tax, and make other adjustments, including to its net op-3 erating losses, resulting from adjustments to the taxpayer's federal4 taxable income.5 (8)(a) Unless otherwise agreed in writing by the taxpayer and the state6 tax commission, any adjustments by the state tax commission or by the7 taxpayer made after the expiration of the time period set forth in sec-8 tion 63-3068, Idaho Code, shall be limited to changes to the taxpayer's9 tax liability arising from federal adjustments.10 (b) The time periods provided for in section 63-3069, Idaho Code, may be11 extended:12 (i) Automatically, upon written notice to the state tax commis-13 sion, by sixty (60) days for an audited partnership or tiered part-14 ner that has ten thousand (10,000) or more direct partners; or15 (ii) By written agreement between the taxpayer and the state tax16 commission pursuant to section 63-3068(m), Idaho Code.17 (c) Any extension granted under this subsection for filing the report18 of federal adjustments extends the last day prescribed by law for as-19 sessing any additional tax arising from the adjustments to federal tax-20 able income and the period for filing a claim for refund or credit of21 taxes pursuant to section 63-3068, Idaho Code.22

SECTION 5. That Section 63-3072, Idaho Code, be, and the same is hereby23 amended to read as follows:24 63-3072. CREDITS AND REFUNDS. (a) Subject to the provisions of subsec-25 tions (b), (c) and (h) of this section, where there has been an overpayment26 of the tax imposed by the provisions of this chapter, the amount of such over-27 payment shall be credited against any tax administered by the state tax com-28 mission which tax is then due from the taxpayer, and any balance of such ex-29 cess shall be refunded to the taxpayer.30 (b) Except in regard to amounts withheld as provided in section31 63-3035, 63-3035A or 63-3036, Idaho Code, or amounts paid as estimated32 payments under section 63-3036A, Idaho Code, or amounts paid as backup33 withholding under section 63-3036B, Idaho Code, a claim for refund of tax,34 penalties, or interest paid shall be made within the later of three (3)35 years of the due date of the return, without regard to extensions, or three36 (3) years from the date the return was filed, and a claim for credit of tax,37 penalties, or interest paid shall be made within the later of ten (10) years38 of the due date of the return, without regard to extensions, or ten (10) years39 from the date the return was filed. However, with regard to remittances40 received with an extension of time to file, or a tentative return, a claim41 for credit or refund of such remittances shall be made within three (3) years42 from the due date of the return without regard to extensions.43 (c) With regard to amounts withheld as provided in section 63-3035,44 63-3035A or 63-3036, Idaho Code, or amounts paid as estimated payments under45 section 63-3036A, Idaho Code, or amounts paid as backup withholding under46 section 63-3036B, Idaho Code, a claim for refund shall be made within three47 (3) years from the due date of the return, without regard to extensions,48 for the taxable year in respect to which the tax was withheld or paid, and a49

16 claim for credit shall be made within ten (10) years from the due date of the1 return, without regard to extensions, for the taxable year with respect to2 which the tax was withheld or paid. However, with regard to an individual3 who is entitled to an extension of time as provided in section 7508 of the4 Internal Revenue Code, the three (3) year period provided in this subsection5 for claiming a credit or refund shall be extended by the number of days disre-6 garded under section 7508 of the Internal Revenue Code.7 (d) Notwithstanding any other provisions of this section, when Idaho8 taxable income and/or tax credits for any taxable year have been adjusted9 as a result of a final federal determination adjustment, the period of lim-10 itations for claiming a refund or credit of tax, penalties, or interest11 shall be reopened and shall not expire until the later of one (1) year from12 the date of delivery of the final federal determination to the taxpayer by13 the internal revenue service date, three (3) years from the due date of the14 return, without regard to extensions, or three (3) years from the date the15 return was filed. For purposes of this subsection, the term "final federal16 determination adjustment" shall mean the final resolution of all issues17 which were adjusted by the internal revenue service have the same meaning as18 that term is defined in section 63-3070(2)(i), Idaho Code, and "final deter-19 mination rate" shall have the same meaning as that term is defined in section20 63-3070(2)(h), Idaho Code. When the final federal determination adjustment21 is submitted, the taxpayer shall also submit copies of all schedules and22 written explanations provided by the internal revenue service. Upon the23 expiration of the period of limitations as provided in subsections (b) and24 (h) of this section, only those specific items of income, deductions, gains,25 losses or credits which were adjusted in the final federal determination26 adjustment shall be subject to adjustment for purposes of recomputing Idaho27 income, deductions, gains, losses, credits, and the effect of such adjust-28 ments on Idaho allocations and apportionments.29 (e) If a claim for credit or refund relates to an overpayment attribut-30 able to a net operating loss carryback incurred in a taxable year commencing31 in 2012 or earlier, or a capital loss carryback, in lieu of the period of lim-32 itations prescribed in subsection (b) of this section, the period shall be33 that period which ends with the expiration of the fifteenth day of the for-34 tieth month following the end of the taxable year of the net operating loss35 or capital loss which results in such carryback. Claims for net operating36 losses carried back from taxable years commencing after 2012 shall be made37 pursuant to section 63-3022, Idaho Code.38 (f) If an adjustment, which was made within the period of limitations39 as provided in this section, affects the amount of tax credit, net operating40 loss, or capital loss, claimed in a taxable year other than the tax year in41 which the adjustment is made, then adjustments to the credit, net operating42 loss, or capital loss, claimed in such other tax year may be made and a claim43 for credit or refund of tax, penalties or interest may be made even though44 such claim would otherwise be barred under the provisions of this section.45 (g) In the case of a duplicate return filed under section 63-217(1)(b),46 Idaho Code, the limitations under this section shall be the later of one (1)47 year from the filing of the duplicate return or the date otherwise applicable48 under this section.49

17 (h) Prior to the expiration of the time prescribed in this section for1 credit or refund of any tax imposed by the provisions of this chapter, both2 the state tax commission or its delegate or deputy and the taxpayer may con-3 sent in writing to extend such period of time. The period so agreed upon may4 be extended by subsequent agreements in writing made before the expiration5 of the period previously agreed upon. When a pass-through entity extends the6 period of limitations in accordance with the provisions of this subsection7 the period of limitations for the other taxpayers is automatically extended8 for the same period for the purpose of claiming a credit or refund of tax,9 penalties or interest by the other taxpayers reflecting the pass-through en-10 tity adjustments.11 (i) The expiration of the period of limitations as provided in this sec-12 tion shall be suspended for the time period between the issuance by the state13 tax commission of a notice under either section 63-3045 or 63-3065, Idaho14 Code, and the final resolution of any proceeding resulting from the notice.15 (j) Appeal of a state tax commission decision denying in whole or in16 part a claim for credit or refund shall be made in accordance with and within17 the time limits prescribed in section 63-3049, Idaho Code.18 (k) For purposes of this section, "return" includes a notice of defi-19 ciency determination issued by the state tax commission when no return was20 filed by the taxpayer. Such a return is deemed filed on the date the taxes de-21 termined by the state tax commission are assessed.22

SECTION 6. An emergency existing therefor, which emergency is hereby23 declared to exist, this act shall be in full force and effect on and after24 July 1, 2026.25