Page 163 - The TEFRA Partnership Audit Rules Repeal:

ALI CLE Live Video Webcast / “The TEFRA Partnership Audit Rules Repeal: Partnership and Partner Impacts” June 7, 2016, Jerald David August and Terence Floyd Cuff
 We can infer that the portion of the imputed underpayment allocable to the corporation would be computed at the 35 percent rate.
We will have to wait for regulations to confirm this computation. Those regulations also might address what happens if the corporation is a personal holding company and the distributive share is personal holding company income or what happens if the corporation is a REIT and the income constitutes gain from a prohibited transaction that is subject to a 100% tax under Section 857(b)(6).
The GENERAL EXPLANATION OF TAX LEGISLATION ENACTED IN 2015 (JCS-1-16, March 2016) offers this reasoning on capital gain adjustments:
 The partnership may demonstrate that a portion of an imputed underpayment relates to an item of long-term capital gain or qualified dividend income that is allocable to a partner who is an individual.
 The highest rate of tax with respect to that item of long-term capital gain or qualified dividend income for the reviewed year [the year under audit] (20 percent for 2016, for example) is lower than the highest rate of Federal income tax applicable to individuals for the reviewed year (39.6 percent in 2016, for example).
 The highest rate for the type of income and type of taxpayer (apparently for the reviewed year) applies under the modification.
Of course, the gain may be Section 1231(b) gain, the taxation of which will depend on the partner’s tax circumstances. Section 1231(b) gain may create more of a challenge in determining an appropriate tax rate under the partnership audit rules.
Modification of the tax rate or method for computing the imputed underpayment will depend on the nature of the partner and the distributive share allocated to that partner. The portion of the imputed underpayment to which the lower rate applies with respect to a partner is determined by reference to the partner’s distributive share of items of income, gain, loss, deduction, and credit to which the imputed underpayment relates.
The partner’s distributive share may differ among tax items. According to the GENERAL EXPLANATION OF TAX LEGISLATION ENACTED IN 2015 (JCS-1-16, March 2016), the portion of the imputed underpayment to which the lower rate
© Terence Floyd Cuff and Jerald David August, 2016
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