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Example 4. Continuations between post-merger entity is only 20%. The
“old and cold” partnerships: A and remaining 80% is owned by CD’s Practice & Procedures
B are equal members in AB LLC, a historic partners. Under the merger
widget manufacturer. The members rules, AB terminates in the transac- Is a substitute for return a
are approached by their largest tion because AB’s partners own 50% return? Understanding the
competitor, CD LLC, with an offer or less of the capital and profits of statute of limitation for credits
to acquire their business. Under the the post-merger partnership. Since and refunds
agreement, CD will give A and B a CD’s historic partners retain the re- Sec. 6511 outlines the limitations on a
cash payment equal to 80% of the maining 80%, CD is the continuing claim for credit or refund of an overpay-
value of AB and a rollover interest partnership, which files a full-year ment of any tax. Where the taxpayer does
worth 20% of the total capital and return accordingly. not file a required return and the IRS
profits of CD. Immediately after prepares a return on behalf of the taxpayer
the transaction, AB will liquidate. Example 5: Comparison to under Sec. 6020(b), the issue arises of
Rev. Rul. 99-6: Assume the whether the substitute for return starts
The consolidation of AB and CD same facts as Example 4, ex- the running of the statute of limitation on
appears similar to the facts of Rev. Rul. cept the purchase agreement claims for refund under Sec. 6511. This
66-264. Immediately after the transac- specifies Rev. Rul. 99-6, Situ- item examines this issue and the potential
tion, A and B remain direct partners in ation 2, is intended to apply to position that such a substitute for return
a partnership that carries on the trade the transaction. (SFR) does not constitute a return that
or business of AB. Given the similari- triggers the statute of limitation on claims
ties, it is not unreasonable to immedi- Again, it is unclear if the applica- for refund under Sec. 6511.
ately assume CD is a continuation of tion of Rev. Rul. 99-6 makes sense
AB. However, nuanced differences may where partners of the target partner- SFR procedures
change the analysis. Here, CD is an ex- ship continue to be partners in the Sec. 6020 grants the IRS the author-
isting, “old and cold” partnership with acquiring partnership. The merger ity to prepare and execute a return on a
its own widget fabrication trade. Does rules already discuss how to account taxpayer’s behalf. Where a taxpayer fails
the existence of a CD trade or business for a consolidation of multiple part- to file a required return or submits a false
create a need for further analysis? nerships. The transaction pattern or fraudulent return, Sec. 6020(b)(1)
The framework that makes the that best fits Rev. Rul. 99-6 is one authorizes the IRS to prepare an SFR on
most sense to apply when evaluating where there is no continuity of own- the taxpayer’s behalf using information
a transaction where multiple “old and ership in the continuing partnership. already in its possession or other available
cold” partnerships become a single For example, if CD acquired 100% of information. The IRS then assesses the
partnership is the merger rules of Regs. the AB partnership interests for cash, tax reflected on the SFR.
Sec. 1.708-1(c). If the merger rules then the transaction is consistent The IRS most commonly uses these
apply, the determinations related to with Situation 2 of Rev. Rul. 99-6. SFR procedures when a taxpayer has
partnership continuations are made by failed to file a required return, and one or
reference to a set of mechanical rules. Determine which rules apply more third parties have reported income
These rules determine which (if any) to the facts to the taxpayer for the tax year at issue.
partnership is a continuation, based on Whether partnerships terminate or Once an SFR authorized under Sec.
the ownership of the post-merger part- continue for federal tax purposes is 6020(b)(1) is prepared and executed by
nership or on the net fair market value not always cut and dried. The tax the IRS, Sec. 6020(b)(2) deems the SFR
of the assets contributed by each of the consequences of a transaction may “prima facie good and sufficient for all
consolidating partnerships. If none of not even align with state law. In ad- legal purposes.” However, a question may
the members of the consolidating part- dition, the fact patterns of a partner- arise of whether an SFR is considered a
nerships own more than 50% of the ship continuation transaction may return for purposes of the statute of limi-
capital and profits, both partnerships brush up against other rulings, so it tation on claims for refund.
are deemed to terminate on the date of is important to identify which set
the merger, with the resulting partner- of rules best applies to an underly- Sec. 6511 limitations on credit or
ship treated as newly formed. ing transaction. refund claims
In Example 4, A and B’s owner- From Mike Laier, CPA (Mike.Laier@ Sec. 6511(a) provides that where the tax
ship in the capital and profits of the rsmus.com), Chicago is one for which a return is required, a

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