PLR 200140061: IRS narrows earlier partnership allocation ruling to identified contributions

Plain-English summary

An earlier letter allowed a partnership fund to use a method for reverse § 704(c) allocations and to combine certain built-in gains and losses for aggregate allocations. That letter did not identify the specific partners or contributed assets. After the fund supplied those details, the IRS modified the prior ruling so it applied only to the contributions specifically described. It would not cover other contributions by current or future partners. The letter also recites rules governing modifications and possible limits on retroactive effect, but makes no separate determination about retroactivity here.

Ruling snapshot

• Question: Which contributions were covered by the fund's earlier § 704(c) allocation ruling?
• Outcome: Other: the earlier ruling was narrowed to identified contributions.
• Key authorities: IRC §§ 704(c), 7805(b)(8); Treas. Reg. § 1.704-3(e)(3).

Full text (IRS public release)

Internal Revenue Service Department of the Treasury

Number: 200140061 Washington, DC 20224
Release Date: 10/5/2001
Index Number: 704.01-04 Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:B01-PLR-129088-01
Date:
July 9, 2001

Fund =

A =

B =

C =

D =

E =

Date 1 =

Date 2 =

Date 3 =

Date 4 =

Date 5 =

a =

b =

c =

d =

e =

f =

g =
2
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h
=

i
=

On January 6, 2000, the Internal Revenue Service issued LTR 200015017 (PLR- 114792-99) to Fund. The purpose of this letter is to inform you that LTR 200015017 is hereby modified in accordance with section 12.04 of Rev. Proc. 2001-1, 2001-1 I.R.B. 1 (January 2, 2001).

LTR 200015017 granted Fund, a partnership, rulings that (i) Fund’s method of making reverse section 704(c) allocations is a reasonable method within the meaning of section 1.704-3(e)(3) of the Income Tax Regulations, and (ii) Fund may combine built-in gains and losses from qualified financial assets contributed to it with gains and losses from revaluations for purposes of performing aggregate allocations. However, LTR 200015017 does not identify the specific partners and assets to be contributed.

According to information submitted on June 19, 2001, the current partners in Fund are A, B, C, D, and E, each of which is a publicly offered regulated investment company as defined in section 67(c)(2)(B) and section 1.67-2(g)(3)(iii). A acquired its interest in Fund on Date 1 by contributing cash in the amount of $a and securities with a fair market value of $b. B acquired its interest in Fund on Date 2 by contributing cash in the amount of $c and securities with a fair market value of $d. C acquired its interest in Fund on Date 3 by contributing cash in the amount of $e and securities with a fair market value of $f. D acquired its interest in Fund on Date 4 by contributing cash in the amount of $g. E acquired its interest in Fund on Date 5 by contributing cash in the amount of $h and securities with a fair market value of $i.

LTR 200015017 is modified to apply only to the contributions to Fund for which the Fund has supplied specific information regarding the contributed assets as outlined above, and not to any other contributions by any current or future partner.

Section 7805(b)(8) of the Code provides that the Secretary of the Treasury or his delegate may prescribe the extent, if any, to which any ruling (including any judicial decision or any administrative determination other than by regulation) relating to the internal revenue laws shall be applied without retroactive effect.

Section 12.04 of Rev. Proc. 2001-1 provides that a letter ruling found to be in error or not in accord with the current views of the Internal Revenue Service may be revoked or modified, unless it was part of a closing agreement. If a letter ruling is revoked, the revocation applies to all years open under the statute of limitations unless the Service uses its discretionary authority under section 7805(b) to limit the retroactive effect of the revocation. Section 12.05 provides that, except in rare or unusual circumstances, the revocation or modification of a letter ruling will not be applied 3
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retroactively to the taxpayer to whom the letter ruling was issued provided that, inter alia, the taxpayer relied in good faith on the letter ruling and revoking or modifying the letter ruling would be to the taxpayer’s detriment. Section 12.11 prescribes the procedures for requesting relief under section 7805(b).

This ruling is directed only to the taxpayer on whose behalf it was requested.
Section 6110(k)(3) provides that it may not be used or cited as precedent.

Pursuant to a power of attorney on file with this office, a copy of this letter is being sent to the taxpayer.

Sincerely yours,
/s/William P. O’Shea
Deputy Associate Chief Counsel
(Passthroughs and Special Industries)

Enclosures (2)
Copy of this letter
Copy for section 6110 purposes