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transferred and taxable income available
to absorb the loss). Conversely, earlier If a partnership elected to modify the imputed
guidance addressing the treatment of
fees paid to terminate a stock acquisition underpayment by filing amended returns,
agreement concluded that, because the then each partner would file amended tax
payments were made in connection with
a capital asset (i.e., stock), the entire returns, pay the additional tax, and submit
loss was capital in nature and therefore confirmation of each to the IRS.
subject to the capital loss limitation
rules, which can significantly limit a
corporate taxpayer’s loss deductions (see imputed underpayment calculation and This item discusses how to
Legal Advice Issued by Field Attorneys a Form 886-A, Explanation of Items, to request modification of an imput-
20163701F and CCA 201642035). explain the calculation. The partner- ed underpayment.
From Kathleen Meade, CPA, ship has 270 days from the date of the
Austin, Texas NOPPA to submit a request for imputed Imputed underpayment: The
underpayment modification and sup- basics
porting documents. Thus, the partner- The imputed underpayment is equal to
Partners & Partnerships ship’s representative has a specified time the total netted partnership adjustment
to consider the IRS’s changes, how it multiplied by the highest rate of federal
Partnership examinations: affects all the partners, and how to best income tax in effect for the reviewed
Imputed underpayment modify the imputed underpayment to year, increased or decreased by the net
modification minimize the burden on the partnership. credit grouping adjustment (Regs. Sec.
The Bipartisan Budget Act of 2015, P.L. Unless the proposed partnership 301.6225-1(b)(1)).
114-74, complicated partnership ex- adjustment is modified, the partnership The partnership first categorizes each
aminations by adopting the centralized must pay the highest marginal tax rate on of the IRS’s adjustments as either positive
partnership audit regime (CPAR), which any positive adjustments (IRS-favorable) or negative. Then the partnership groups
has lengthened examinations and cre- and defer negative adjustments (taxpayer- the adjustments into (1) the realloca-
ated convoluted traps, all while shifting favorable) to the current year’s tax return. tion grouping, (2) the credit grouping,
the administrative onus from the IRS to The partnership’s representative has an (3) the creditable expenditure grouping,
partnerships and their representatives. ethical obligation to his or her client to or (4) the residual grouping. A majority
Congress and the IRS made the burden understand the CPAR’s nuances and end of adjustments fall under the residual
shifting clear in specifying the proce- the examination advantageously. grouping, as this group encompasses any
dures to close a CPAR exam.
Once the IRS completes its field
procedures, it issues a summary report to
the partnership representative contain-
ing the preliminary audit results and the
imputed underpayment computation. If
IMAGE BY FRANCESCO CARTA FOTOGRAFO/GETTY IMAGES the summary report, the IRS will issue a
the partnership representative indicates
he or she does not agree with the pro-
posed changes or does not respond to

30-day letter package to the partnership
representative, which provides informa-
tion for the partnership representative
to request an Appeals conference and
protest proposed changes.
The revenue agent must issue a No-
tice of Proposed Partnership Adjustment
(NOPPA) after the 30-day letter. The
NOPPA contains the revenue agent’s

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