Chapter 0155 - 522R - S Ver of SB1288

Be it enacted by the Legislature of the State of Arizona:

Section 1. Section 42-1001, Arizona Revised Statutes, is amended to read:

START_STATUTE42-1001. Definitions

In this title, unless the context otherwise requires:

1. "Board" or "state board" means either the state board of tax appeals or the state board of equalization, as applicable.

2. "Court" means the tax court or superior court, whichever is applicable.

3. "Department" means the department of revenue.

4. "Director" means the director of the department.

5. "Internal revenue code" means the United States internal revenue code of 1986, as amended and in effect as of January 1, 2015 2016, including those provisions that became effective during 2014 2015 with the specific adoption of their retroactive effective dates but excluding all changes to the code enacted after January 1, 2015 2016. END_STATUTE

Sec. 2. Section 43-105, Arizona Revised Statutes, is amended to read:

START_STATUTE43-105. Internal revenue code; definition; application

A. For the purposes of computing income tax pursuant to this title, for taxable years beginning from and after December 31, 2015, "internal revenue code" means the United States internal revenue code of 1986, as amended, in effect on January 1, 2016, including those provisions that became effective during 2015 with the specific adoption of all federal retroactive effective dates, but excluding any change to the code enacted after January 1, 2016.

A. B. For the purposes of computing income tax pursuant to this title, for taxable years beginning from and after December 31, 2014 through December 31, 2015, "internal revenue code" means the United States internal revenue code of 1986, as amended, in effect on January 1, 2015, including those provisions that became effective during 2014 with the specific adoption of all federal retroactive effective dates, but excluding any change to the code enacted after January 1, 2015 and including those provisions of the slain officer family support act of 2015 (P.L. 114-7), the don't tax our fallen public safety heroes act (P.L. 114-14), the surface transportation and veterans health care choice improvement act of 2015 (P.L. 114-41) and the consolidated appropriations act, 2016 (P.L. 114-113) that are retroactively effective during taxable years beginning from and after December 31, 2014 through December 31, 2015.

B. C. For the purposes of computing income tax pursuant to this title, for taxable years beginning from and after December 31, 2013 through December 31, 2014, "internal revenue code" means the United States internal revenue code of 1986, as amended, in effect on January 1, 2014, including those provisions that became effective during 2013 with the specific adoption of all federal retroactive effective dates, and including those provisions of the Philippines charitable giving assistance act (P.L. 113‑92), the Gabriella Miller kids first research act (P.L. 113-94), the cooperative and small employer charity pension flexibility act (P.L. 113‑97), the highway and transportation funding act of 2014 (P.L. 113‑159), the tribal general welfare exclusion act of 2014 (P.L. 113‑168), the consolidated and further continuing appropriations act, 2015 (P.L. 113‑235), the 2014 airline bankruptcy payments rollover act (P.L. 113‑243), and the tax increase prevention act of 2014 (P.L. 113‑295), the slain officer family support act of 2015 (P.L. 114‑7) and the consolidated appropriations act, 2016 (P.L. 114-113) that are retroactively effective during taxable years beginning from and after December 31, 2013 through December 31, 2014.

C. D. For the purposes of computing income tax pursuant to this title, for taxable years beginning from and after December 31, 2012 through December 31, 2013, "internal revenue code" means the United States internal revenue code of 1986, as amended, in effect on January 3, 2013, including those provisions that became effective during 2012 with the specific adoption of all federal retroactive effective dates, and including those provisions of the Philippines charitable giving assistance act (P.L. 113‑92), the highway and transportation funding act of 2014 (P.L. 113‑159), the tribal general welfare exclusion act of 2014 (P.L. 113‑168), the 2014 airline bankruptcy payments rollover act (P.L. 113‑243), and the tax technical corrections act of 2014 (P.L. 113‑295, division A, title II) and the consolidated appropriations act, 2016 (P.L. 114-113) that are retroactively effective during taxable years beginning from and after December 31, 2012 through December 31, 2013.

D. E. For the purposes of computing income tax pursuant to this title, for taxable years beginning from and after December 31, 2011 through December 31, 2012, "internal revenue code" means the United States internal revenue code of 1986, as amended, in effect on January 1, 2012, including those provisions that became effective during 2011 with the specific adoption of all federal retroactive effective dates, and including those provisions of the FAA modernization and reform act of 2012 (P.L. 112‑95), the moving ahead for progress in the 21st century act (P.L. 112‑141), the American taxpayer relief act of 2012 (P.L. 112‑240), the 2014 airline bankruptcy payments rollover act (P.L. 113‑243), the tribal general welfare exclusion act of 2014 (P.L. 113‑168), and the tax technical corrections act of 2014 (P.L. 113‑295, division A, title II) and the consolidated APPROPRIATIONS act, 2016 (P.L. 114-113) that are retroactively effective during taxable years beginning from and after December 31, 2011 through December 31, 2012.

E. F. For the purposes of computing income tax pursuant to this title, for taxable years beginning from and after December 31, 2010 through December 31, 2011, "internal revenue code" means the United States internal revenue code of 1986, as amended, in effect on January 1, 2011, including those provisions that became effective during 2010 with the specific adoption of all federal retroactive effective dates, and including those provisions of Public Law 112‑40, the moving ahead for progress in the 21st century act (P.L. 112‑141), the American taxpayer relief act of 2012 (P.L. 112‑240), the tribal general welfare exclusion act of 2014 (P.L. 113‑168) and the tax technical corrections act of 2014 (P.L. 113‑295, division A, title II) that are retroactively effective during taxable years beginning from and after December 31, 2010 through December 31, 2011.

F. G. For the purposes of computing income tax pursuant to this title, for taxable years beginning from and after December 31, 2009 through December 31, 2010, "internal revenue code" means the United States internal revenue code of 1986, as amended, in effect on January 1, 2010, including those provisions that became effective during 2009 with the specific adoption of all federal retroactive effective dates, and including those provisions of the temporary extension act of 2010 (P.L. 111‑144), the hiring incentives to restore employment act (P.L. 111‑147), the patient protection and affordable care act (P.L. 111‑148), the health care and education reconciliation act of 2010 (P.L. 111‑152), the preservation of access to care for medicare beneficiaries and pension relief act of 2010 (P.L. 111‑192), the Dodd-Frank Wall Street reform and consumer protection act (P.L. 111‑203), the small business jobs act of 2010 (P.L. 111‑240), the claims resolution act of 2010 (P.L. 111‑291), the tax relief, unemployment insurance reauthorization, and job creation act of 2010 (P.L. 111‑312), the regulated investment company modernization act of 2010 (P.L. 111‑325) and the tax technical corrections act of 2014 (P.L. 113-295, division A, title II) that are retroactively effective during taxable years beginning from and after December 31, 2009 through December 31, 2010.

G. H. For purposes of computing income tax pursuant to this title, for taxable years beginning from and after December 31, 2008 through December 31, 2009, "internal revenue code" means the United States internal revenue code of 1986, as amended, in effect on January 1, 2009, including those provisions that became effective during 2008 with the specific adoption of all federal retroactive effective dates, and including those provisions of the American recovery and reinvestment act of 2009 (P.L. 111‑5) except section 1211, the consumer assistance to recycle and save act of 2009 (P.L. 111‑32), the worker, homeownership, and business assistance act of 2009 (P.L. 111‑92) except section 13, the hiring incentives to restore employment act (P.L. 111‑147), the patient protection and affordable care act (P.L. 111‑148), the preservation of access to care for medicare beneficiaries and pension relief act of 2010 (P.L. 111‑192), the small business jobs act of 2010 (P.L. 111‑240), the tax relief, unemployment insurance reauthorization, and job creation act of 2010 (P.L. 111‑312) and the tax technical corrections act of 2014 (P.L. 113‑295, division A, title II) that are retroactively effective during taxable years beginning from and after December 31, 2008 through December 31, 2009.

H. I. For purposes of computing income tax pursuant to this title, for taxable years beginning from and after December 31, 2007 through December 31, 2008, "internal revenue code" means the United States internal revenue code of 1986, as amended, in effect on January 1, 2008, including those provisions that became effective during 2007 with the specific adoption of all federal retroactive effective dates and including those provisions of the economic stimulus act of 2008 (P.L. 110‑185), the heroes earnings assistance and relief tax act of 2008 (P.L. 110‑245), the heartland, habitat, harvest and horticulture act of 2008 (P.L. 110‑246), the housing assistance tax act of 2008 (P.L. 110‑289), the emergency economic stabilization act of 2008 (P.L. 110‑343), the worker, retiree, and employer recovery act of 2008 (P.L. 110‑458), the American recovery and reinvestment act of 2009 (P.L. 111‑5) except section 1211, the worker, homeownership, and business assistance act of 2009 (P.L. 111‑92) except section 13 and the tax technical corrections act of 2014 (P.L. 113‑295, division A, title II) that are retroactively effective during taxable years beginning from and after December 31, 2007 through December 31, 2008.

I. J. For purposes of computing income tax pursuant to this title, for taxable years beginning from and after December 31, 2006 through December 31, 2007, "internal revenue code" means the United States internal revenue code of 1986, as amended, in effect on January 1, 2007, including those provisions that became effective during 2006 with the specific adoption of all federal retroactive effective dates and including those provisions of the small business and work opportunity tax act of 2007 (P.L. 110‑28), the energy independence and security act of 2007 (P.L. 110‑140), Public Law 110‑141, the mortgage forgiveness debt relief act of 2007 (P.L. 110‑142), the tax technical corrections act of 2007 (P.L. 110‑172), the economic stimulus act of 2008 (P.L. 110‑185), the heroes earnings assistance and relief tax act of 2008 (P.L. 110‑245), the heartland, habitat, harvest and horticulture act of 2008 (P.L. 110‑246), the housing assistance tax act of 2008 (P.L. 110‑289), the emergency economic stabilization act of 2008 (P.L. 110‑343), the worker, retiree, and employer recovery act of 2008 (P.L. 110‑458) and the tax technical corrections act of 2014 (P.L. 113-295, division A, title II) that are retroactively effective during taxable years beginning from and after December 31, 2006 through December 31, 2007.

J. K. For purposes of computing income tax pursuant to this title, for taxable years beginning from and after December 31, 2005 through December 31, 2006, "internal revenue code" means the United States internal revenue code of 1986, as amended, in effect on January 1, 2006, including those provisions that became effective during 2005 with the specific adoption of all federal retroactive effective dates and including those provisions of the tax increase prevention and reconciliation act of 2005 (P.L. 109‑222), the pension protection act of 2006 (P.L. 109‑280), the tax relief and health care act of 2006 (P.L. 109‑432), the small business and work opportunity tax act of 2007 (P.L. 110‑28), the mortgage forgiveness debt relief act of 2007 (P.L. 110‑142), the tax technical corrections act of 2007 (P.L. 110‑172), the heartland, habitat, harvest and horticulture act of 2008 (P.L. 110‑246), the housing assistance tax act of 2008 (P.L. 110‑289) and the tax technical corrections act of 2014 (P.L. 113‑295, division A, title II) that are retroactively effective during taxable years beginning from and after December 31, 2005 through December 31, 2006.

K. For purposes of computing income tax pursuant to this title, for taxable years beginning from and after December 31, 2004 through December 31, 2005, "internal revenue code" means the United States internal revenue code of 1986, as amended, in effect on January 1, 2005, including those provisions that became effective during 2004 with the specific adoption of all federal retroactive effective dates and including those provisions of the Katrina emergency tax relief act of 2005 (P.L. 109‑73), the energy tax incentives act of 2005 (title XIII of the energy policy act of 2005 (P.L. 109‑58)), the gulf opportunity zone act of 2005 (P.L. 109‑135), the tax technical corrections act of 2007 (P.L. 110‑172), the heartland, habitat, harvest and horticulture act of 2008 (P.L. 110‑246) and the housing assistance tax act of 2008 (P.L. 110‑289) that are retroactively effective during taxable years beginning from and after December 31, 2004 through December 31, 2005. END_STATUTE

Sec. 3. Section 43-325, Arizona Revised Statutes, is amended to read:

START_STATUTE43-325. Time for filing returns

Unless otherwise indicated: ,

1. Returns made on the basis of the calendar year shall be filed on or before the fifteenth day of April following the close of the calendar year.

2. Returns made on the basis of a fiscal year shall be filed on or before the fifteenth day of the fourth month following the close of the fiscal year.

3. For taxable years beginning from and after December 31, 2015, partnership returns are due on or before the fifteenth day of the third month following the close of the taxable year. END_STATUTE

Sec. 4. Section 43-327, Arizona Revised Statutes, is amended to read:

START_STATUTE43-327. Recomputation of tax or amended return due after federal adjustment; definition

A. If the amount of taxable income for any year of any taxpayer as reported to the United States treasury department is changed or corrected by the commissioner of internal revenue or other officer of the United States or other competent authority, or if a renegotiation of a contract or subcontract with the United States results in a change in taxable income, such taxpayer within ninety days after the final determination of such change or correction or renegotiation shall either:

1. File with the department a copy of the final determination, concede the accuracy of the determination or state any errors and request the department to recompute the tax owed to this state. Recomputing the tax by the department is not considered to be an audit for purposes of section 42‑2059.

2. File an amended return as required by the department of revenue.

B. For federal changes to which section 43-1414 applies:

1. If the partnership passes through to each partner the partner's distributive share of any adjustments pursuant to section 43-1414, subsection B, paragraph 2, the statement provided to each partner under section 43-1414, subsection B, paragraph 2 is considered to be a change in taxable income of the partner by the commissioner of internal revenue for the taxable year of the partner in which the reviewed year of the partnership ends. The partners shall each file an amended return within one hundred fifty days after the final determination of the partnership adjustments by the internal revenue service to report their share of the partnership adjustments as reported to them in the statement provided by the partnership pursuant to section 43‑1414, subsection B, paragraph 2.

2. If the partnership is required to report federal changes and pay the tax pursuant to section 43-1414, subsection B, paragraph 1, the partnership shall file the return required under section 43-1414, subsection A and pay the tax within ninety days after the final determination of the partnership adjustments by the internal revenue service.

B. C. The department may require an amended return if the department lacks the necessary information to recompute the tax owed to this state.

C. D. Any taxpayer filing an amended return with the United States treasury department shall also file within ninety days of the final determination by the United States treasury department an amended return with the department of revenue, which shall contain such information as it shall require.

D. E. For the purposes of this section, assessments under a partial agreement, closing agreement covering specific matters, jeopardy or advance payment are considered part of the final determination defined in subsection G of this section and must be submitted to the department with the final determination.

E. F. If a partial agreement, a closing agreement covering specific matters or any other agreement with the United States treasury department would be final except for a federal extension still open for flow through adjustments from other entities or other jurisdictions, then the final determination is the date the taxpayer signs the agreement. Flow through adjustments are finally determined based on criteria specified in subsection G H of this section.

F. G. The department is not required to issue refunds based on any agreement other than a final determination.

G. H. For the purposes of this section, "final determination" means the appeal rights of both parties have expired or have been exhausted relative to the tax year. END_STATUTE

Sec. 5. Section 43-1401, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1401. Definitions

In this chapter, unless the context otherwise requires:

1. "Arizona gross income" of a partnership means its taxable income for the year, computed according to subtitle A, chapter 1, subchapter K of the internal revenue code, exclusive of items requiring separate computation under section 43-1412, paragraphs 1 through 16. For purposes of this title the provisions relating to interest on investment indebtedness contained in section 163(d) of the internal revenue code shall not apply.

2. "Arizona taxable income" of a partnership means its Arizona gross income adjusted by the modifications specified in sections 43-1021 and 43‑1022 and section 43-1414, subsection A. END_STATUTE

Sec. 6. Title 43, chapter 14, article 2, Arizona Revised Statutes, is amended by adding section 43-1414, to read:

START_STATUTE43-1414. 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. END_STATUTE

Sec. 7. Federal exclusion for wrongfully incarcerated individuals

A. Except as provided in subsection B of this section, this state conforms to the retroactive changes made by Public Law 114-113, division Q, section 304 that allow an exclusion from gross income for civil damages, restitution or other monetary award for wrongfully incarcerated individuals.

B. If Public Law 114-113, division Q, section 304, subsection (d) applies to a taxpayer's federal claim for credit or refund:

1. The taxpayer must file an Arizona amended income tax return for the applicable taxable year on or before December 18, 2016 to claim any refund due to the exclusion allowed by subsection A of this section. Any request filed after December 18, 2016 shall be denied. The taxpayer is responsible for providing all documentation necessary to substantiate the refund request, including copies of the original federal and state income tax returns filed for the taxable year to which the request is related.

2. The department of revenue may review the amended return, and any deficiency resulting from the review of the adjustment may be assessed within six months after the date the amended return is filed or within six months after the date the federal adjustment is final, whichever period expires later. The federal adjustment is final when the internal revenue service has accepted the amended return and the appeal rights of both parties have expired or have been exhausted relative to the adjustment for the taxable year. Any adjustment shall be treated as a deficiency assessment under section 42-1108, Arizona Revised Statutes.