Page 11 - Partnership Audit Rules - Drafting Partnership Agreements: The New Partnership Representative And The Outgoing Tax Matters Partner

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partnership’ s credits (credit group- ing) are grouped together. Third, all remaining adjustments (residual grouping) are grouped together ac- cording to the character, prefer- ences, restrictions, and other limita- tions of the item adjusted. Within each grouping, there might be more than one subgrouping based on a partnership’s particular adjustments.
The proposed regulations provide rules for multiple imputed under- payments.27 Each administrative proceeding that ends with the deter- mination by the IRS of an imputed underpayment will result in a gen- eral imputed underpayment. The IRS may determine, in its discre- tion, a specific imputed underpay- ment based on certain adjustments of items allocated to one partner or a group of partners that had the same or similar characteristics or participated in the same or similar transactions. There may be multiple specific imputed underpayments de- pending on the adjustments.
The partnership is required to produce information for generating the reduction in the imputed un- derpayment within a prescribed time, i.e., 270 days after the notice of proposed audit adjustments is re- ceived by the partnership represen- tative, unless extended by consent.
Generally, the partnership is lia- ble for any penalty, addition to tax, or additional amount. These amounts are determined at the part- nership level as if the partnership were an individual who was subject to federal income tax for the re- viewed year, and the imputed un- derpayment were an actual un- derpayment or understatement for the reviewed year. Therefore, part- ner-level defenses to imputed under-
27 Prop. Reg. 301.6225-1(e). Examples are set forth in the regulations. See Prop. Reg. 301.6225-1(f).
150D*points, Next 240D, Vjust JCE1:1
payments are not taken into account.
The Partnership “Push-Out” Election
In accordance with Section 6626(a), where the partnership is subject to the assessment of an imputed un- derpayment for one or more re- viewed years, it may elect out of having to make the tax payment if no later than 45 days after the FPAA is issued to the partnership, and at such time and in such man- ner as provided by guidance issued by the Service, it furnishes to each partner of the partnership and to the Service a statement of the partner’s share of any adjustment to income, gain, loss, deduction, or credit (as determined in the FPAA) for the re- viewed year(s). The partnership may make the push-out election within the 45-day period from the FPAA, and, within 90 days of the FPAA, may file a petition for readjustment with the Tax Court, federal district court (having venue), or the Court of Federal Claims. This ability to push-out and challenge should not be overlooked. Upon the final court decision, dismissal of the case, or settlement, the partnership imple- ments the election by furnishing statements (at the time and in the manner prescribed by the Secretary) to the reviewed-year partners show- ing each partner’s share of the ad- justments as finally determined.
Under Section 6226(b)(1), each partner’s tax imposed by chapter 1 of subtitle A of the Code (chapter 1 tax) is increased by the aggregate of the adjustment amounts as deter- mined under Section 6226(b)(2). This increase in chapter 1 tax is re- ported on the return for the part- ner’s tax year that includes the date the statement described under Sec- tion 6226(a) is furnished to the part-
28 Section 6226(b)(2)(A). 29 Section 6226(b)(2)(B).
ner by the partnership (reporting year).
The adjustment amounts deter- mined under Section 6226(b)(2) fall into two categories. For the tax year of the partner that includes the end of the partnership’s reviewed year (first affected year), the adjustment amount is the amount by which the partner’s chapter 1 tax would in- crease for the partner’s first affected year if the partner’s share of the ad- justments were taken into account in that year.28 For any tax year after the first affected year, and before the reporting year (that is, the inter- vening years), the adjustment amount is the amount by which the partner’s chapter 1 tax would in- crease by reason of the adjustment to tax attributes determined under Section 6226(b)(3) in each of the intervening years.29 The adjustment amounts determined under Sections 6226(b)(2)(A) and (B) are added to- gether to determine the aggregate of the adjustment amounts for purposes of determining the increase to the partner’s chapter 1 tax in accor- dance with Section 6226(b)(1).
Section 6226(b)(3) provides two rules regarding adjustments to tax attributes that would have been af- fected if the partner’s share of ad- justments were taken into account in the first affected year. First, for an intervening year, any tax attribute must be appropriately adjusted for purposes of determining the adjust- ment amount for that intervening year in accordance with Section 6226(b)(2)(B).30 Second, for any subsequent tax year (that is, a year, including the reporting year, that is subsequent to the intervening years referenced in Section 6226(b)(3)(A)), any tax attribute must be appropriately adjusted.31
30 Section 6226(b)(3)(A). 31 Section 6226(b)(3)(B).
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