New law changes ABE election timing, Idaho income tax adjustments after IRS audit

A new Idaho law, effective July 1, 2026, has made several changes related to partnerships, S corporations, and other pass-through entities, as well as to Idaho income tax adjustments after an IRS audit.

ABE election timing

A business can take the affected business entity (ABE) election on any original tax return, regardless of when it files the return. Previously, Idaho only allowed the election on a timely filed return. However, if a business wants to change its election after filing, it must file an amended return with the election change before the due date of the original tax return.

IRS audit adjustment timeframes

If a federal audit modifies a taxpayer’s tax liability, the taxpayer must file an amended Idaho return showing the IRS adjustments within 180 days of the final federal determination. Otherwise, the taxpayer will owe a negligence penalty. Another option is to provide the Tax Commission with a copy of the IRS adjustment forms within 180 days, and the agency will make the changes. Previously, a taxpayer had only 120 days to notify the Tax Commission of any changes.

Treatment of IRS partnership audits for Idaho purposes  

Partnerships that pay the tax for a federal audit at the entity level can also pay any resulting state tax at the partnership level.

Note that taxpayers who are audited by the IRS but haven’t yet filed an amended Idaho return can make an estimated audit payment to the state. This will stop interest from accruing on any amount due. To make an estimated payment:

• • Pay through your TAP account or QuickPay and select “Audit Payment.”
  • Pay by check and write “Audit Payment” on the check.