Page 13 - Repeal of the TEFRA Entity Level Audit Rules Under the Bipartisan Budget Act of 2015

to the statutory language, it is possible that the Treasury may convince Congress to postpone the effective date of the new rules or otherwise promulgate, under rule-making authority, a delay in effective date. Code Sec. 7805(b).
15 See L.J. Wadsworth, 93 TCM 940, Dec. 56,849(M), TC Memo. 2007-46.
16 Under the TEFRA rules, Code Sec. 6231(a)(1)(B) provides that a partnership having 10 or fewer partners, each of whom is an individual (other than a nonresident alien), a C corporation or an estate of deceased partner is not subject to the TEFRA unified audit rules under the “small part- nership” exception (emphasis added). Moreover all items of the partnership must be allocated among the partners by a single profit and loss sharing ratio. See R.L. Harrell, 91 TC 242, Dec. 44,990 (1988); Z-Tron Computer Research & Development Program, 91 TC 258, Dec. 44,991 (1988). A partnership is not an eligible partner if any of its partnership is a partnership, S cor- poration, trust or estate (other than an estate of a deceased partner), or a nonresident alien individual. Reg. §301.6231(a)(1)-1(a)(3). M. Buchsbaum, 83 TCM 1777, Dec. 54,769(M), TC Memo. 2002-138 (small partner exception not applicable since form K-1 identified trusts as partners). Alternatively, a partnership may elect to “opt-in” or otherwise structure its ownership to meet the definition of a partnership subject to TEFRA under Code Sec. 6231(a).
17 Code Sec. 6226(b).
18 Code Sec. 6226(b).
19 New Code Sec. 6221(b)(2)(A) (where an S corpo-
ration is a partner, the partnership must disclose the name and taxpayer identification of each shareholder ending with or within the partner- ship tax year for which the election is made). See also Code Secs. 6221(b)(2)(B) (foreign partners), 6221(b)(2)(C) (authority to issue regulations or guidance for “other” types of partners).
20 See new Code Sec. 6231(a) (notices of audit (ad- ministrative proceeding), proposed partnership adjustment and final partnership adjustment). Code Sec. 6231(a) (flush language provides that “[N]otice of a final partnership adjustment shall not be mailed earlier than 270 days after the date on which the notice of the proposed partnership adjustment is mailed. Such notices shall be sufficient if mailed to the last known
address of the partnership representative or the partnership (even if the partnership has terminated its existence).” The first sentence shall apply to any proceeding with respect to an administrative adjustment request or AAR filed by a partnership under Code Sec. 6227. See also Code Sec. 6245(b)(1) (“notice of partnership adjustment”) which is deleted under the SELA rules).
21 New Code Sec. 6225(b)(1).
22 New Code Secs. 6235(c)(1)-(4).
23 New Code Sec. 6225(c)(2)(A).
24 New Code Sec. 6225(c)(4).
25 New Code Secs. 6226(b)(1), 6226(b)(2) and
6226(b)(3).
26 New Code Secs. 6223(a)(1), 6231.
27 New Code Sec. 6221(a).
28 New Code Sec. 6232(a). However, in the case of
an AAR to which Code Sec. 6227(b)(1) applies, the resulting underpayment must be paid when the request is filed. The “reviewed year” is the partnership tax year to which the item being adjusted relates. See Code Secs. 6225(d)(1), 6225(d)(1)). The adjustment year includes (1) in the case of an adjustment pursuant to the deci- sion of a court (under the centralized system’s judicial review provisions); the partnership tax year in which the decision becomes final; (2) in the case of an AAR, the partnership tax year in which it is made; or (3) in any other case, the partnership tax year in which the notice of final partnership adjustment is mailed. Code Sec. 6225(d)(2).
29 See Sheppard, Hedge Fund Audits: What’s Being Audited? Tax Notes (Aug. 12, 2013). The IRS fre- quently takes issue with hedge funds reporting their trading of securities as the carrying on of a trade or business. But see Rev. Rul. 2009-38, 2008-2 CB 252 (management fees of upper-tier partnership with respect to lower-tier partner- ships is not deductible by a partner-investor under Code Sec. 162 but instead is a Code Sec. 212 expense. See L. Yaeger Est., CA-2, 89-2 ustc ¶9633, 889 F2d 29. See also Reg. §1.701-2(e) (anti-abuse rule).
30 Code Sec. 6225(c)(8).
31 New Code Sec. 6226(b)(1) (“Tax imposed in
year of statement. Each partner’s tax imposed by chapter 1 for the taxable year which includes the date the statement was furnished [by the
partnership] under subsection (a) shall be increased by the aggregate of the adjustment amounts determined under paragraph (2) for the taxable years referred to therein”) (italics added for emphasis).
32 New Code Sec. 6226(b)(2).
33 Of course the statute of limitations for the cur-
rent year in which the adjusted Schedule K-1 is issued would be applicable. See, e.g., Rhone- Poulenc Surfactants and Specialties, LP, 114 TC 533, Dec. 53,929 (2000), appeal dismissed, CA-3, 2001-1 ustc ¶50,412, 249 F3d 175 (ad- justment to partnership items may be made thought partnership year is close if a partner’s year is still open). See Code Secs. 6229(d), 6501.
34 New Code Sec. 6226(c)(1).
35 New Code Secs. 6226(c)(1) (penalty), 6226(c)
(2) (interest).
36 New Code Sec. 6626(c)(2)(A). Determinations
by a court under Code Sec. 6234 are granted the same force and effect of a decision of the Tax Court or final judgment of the federal district court or the Court of Federal Claims, subject to rights of appeal. See Code Sec. 6234(d). The re- viewing court may also dismiss the action which shall be treated as the FPAA as being correct and enter an appropriate order. Code Sec. 6234(e).
37 New Code Sec. 6226(c)(2)(C).
38 See also AAR request under Code Sec. 6227.
39 Exception to the general rule proscribing an
injunction against the IRS is set forth in Code Sec. 6232(c) which provides that despite a Code Sec. 7421(a) violation of the restriction on as- sessment contained in Code Sec. 6232(b) may be enjoined in the proper court, including the Tax Court. The Tax Court will have no jurisdiction under Code Sec. 6232(c) to enjoin any action unless a timely petition has been filed under Code Sec. 6234 and only with respect to the adjustments that are the subject of the petition
40 New Code Sec. 6233(a)(3).
41 New Code Sec. 6234(c).
42 New Code Secs. 6221(b)(1)(B), 6221(b)(1)(e),
6031(b).
43 New Code Sec. 6221(b)(1)(C).
44 New Code Secs. 6221(b)(1)(D)(i), 6221(b)(1)(D)
(ii).
45 New Code Sec. 6221(b)(2). 46 T.D. 9780 (Aug. 5, 2016).
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