California Revenue and Taxation Code § 18622.5

(a) Notwithstanding Section 18622, if any item required to be shown on a federal partnership return, including any partnership-related item, is changed or corrected by the Commissioner of Internal Revenue or other officer of the United States or other competent authority, and the partnership is issued an adjustment under Section 6225 of the Internal Revenue Code or makes a federal election for alternative payment with the Internal Revenue Service as part of a Partnership Level Audit, the partnership shall report each change or correction to the Franchise Tax Board for the reviewed year within six months after the date of each final federal determination. The report of adjustments or return reporting the adjustments shall be sufficiently detailed to allow computation of the California tax change resulting from the federal adjustment and shall be reported in the form and manner as prescribed by the Franchise Tax Board. (b) For purposes of this section the following terms have the following meanings: (1) “Administrative adjustment request” means an administrative adjustment request filed by a partnership under Section 6227 of the Internal Revenue Code. (2) “California share of the adjustments” means the adjustments described in subdivision (a), subject to the provisions of Chapter 11 (commencing with Section 17951) of Part 10 and the provisions of Chapter 17 (commencing with Section 25101) of Part 11. (3) “Date of each final federal determination” means the date on which each adjustment or resolution resulting from an Internal Revenue Service examination is assessed pursuant to Section 6203 of the Internal Revenue Code. (4) “Direct partner” means a partner that holds an interest directly in a partnership or pass-through entity. (5) “Federal adjustment” means a change to an item or amount determined under the Internal Revenue Code that is used by a partner or partnership to compute state tax owed for the reviewed year whether that change results from action by the Internal Revenue Service, including a Partnership Level Audit, or the filing of a federal refund claim, or an Administrative Adjustment Request by the partnership. A Federal Adjustment is positive to the extent that it increases taxable income as determined under Part 10 (commencing with Section 17001) or net income as determined under Part 11 (commencing with Section 23001) and is negative to the extent that it decreases taxable income as determined under Part 10 (commencing with Section 17001) or net income as determined under Part 11 (commencing with Section 23001). (6) “Federal election for alternative payment” refers to the election described in Section 6226 of the Internal Revenue Code, relating to alternative to payment of imputed underpayment by partnership. (7) “Indirect partner” means a partner in a partnership or pass-through entity that itself holds an interest directly, or through another indirect partner, in a partnership or pass-through entity. (8) “Partnership level audit” means an examination by the Internal Revenue Service at the partnership level pursuant to Subchapter C of Chapter 63 of Subtitle F of Title 26 of the Internal Revenue Code, which results in a federal adjustment. (9) “Publicly traded partnership” means either of the following: (A) A partnership that is a publicly traded partnership within the meaning of Section 7704 of the Internal Revenue Code. (B) Any other partnership where more than 10 percent of the profits or capital interest is owned directly or indirectly by a partnership described in subparagraph (A). (10) “Reallocation adjustment” means a federal adjustment that changes the shares of items of partnership income, gain, loss, expense, or credit allocated to direct partners. A positive reallocation adjustment means a reallocation adjustment that would increase state taxable income for direct partners, and a negative reallocation adjustment means a reallocation adjustment that would decrease 

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