State Conformity with the BBA Partnership Audit Rules: Where Are We in 2025?

Ten years after the federal Bipartisan Budget Act of 2015 (BBA) created a new centralized audit regime for partnerships, many states still haven’t fully conformed. The ABA SALT Committee’s May 2025 BBA Partnership Audit Task Force Report reveals a concerning lack of uniformity, legislative inertia, and practical compliance risks for multistate partnerships.

📜 A Decade of BBA, Still No Uniformity

The BBA created a centralized process where the IRS audits a partnership and collects taxes at the entity level—replacing the prior system where partners were individually assessed. States were encouraged to conform, but many still haven’t enacted the necessary laws or regulations to handle partnership adjustments at the state level.

🛑 The State of State Conformity

The report, authored by Dan De Jong (KPMG) and Fred Nicely (COST), notes that only a subset of states have fully adopted the Multistate Tax Commission’s (MTC) model partnership audit legislation. Most states are either partially compliant or silent on how to handle IRS adjustments under the BBA.

Common problem areas include:

• Unclear timelines for reporting federal adjustments
• Lack of administrative guidance for push-out elections
• No statutory authority to assess additional tax based on federal audit findings
• Inconsistencies in how tiered partnerships are treated

⚖️ The MTC’s Model Legislation

The MTC finalized its model statute in 2019, but as of May 2025, fewer than half the states have adopted it. Even among adopters, implementation varies wildly—some require reporting within 90 days of final federal determination, while others offer no firm deadline.

🔍 Administrative and Compliance Challenges

Without clear rules, taxpayers are often left guessing whether they must amend state returns following a federal audit. This can create compliance traps, interest and penalty exposure, and litigation risks. The Task Force continues to urge states to adopt uniform laws to reduce burdens and increase efficiency for both taxpayers and revenue departments.

📌 Final Takeaway

The Task Force emphasizes that the longer states delay in conforming to the BBA rules, the more uncertainty they create for pass-through entities, investors, and state tax administrators. As federal audits pick up in frequency, the need for state-level clarity grows more urgent.