State audit impact on Fed return

[TomTax51]

State audit determined client business did not meet their criteria for a "for profit business". Disallowed losses for last 3 years and deemed it a hobby. Is the client required to amend the Fed returns based on the state determination?

[Just-Lisa-Now-]

Interesting, which state was this?

[TomTax51]

Minnesota 

[ljr]

I'm really trying to remember if I ever had the situation where the change started at the state level and then went back to fed. Something is nagging at me but I'm just not sure. Usually the state changes are not something that "big" that affects both returns. Please let us all know if the client gets the letter from the IRS. 

[IRonMaN]

Is it a hobby or is it a business?  Unless you had a MN auditor that completely missed the boat, I would have a tough time preparing a federal return taking a loss and then backing it off of a Minnesota return.  If the auditor missed the boat, roll up your sleeves and fight.  If not, I would amend the federal returns. 

[sjrcpa]

MN may very well share the info with the IRS. 

https://www.irs.gov/government-entities/governmental-liaisons/state-information-sharing 

In case you don't know, IRonMaN practices in MN.