CCA 200848033: Changing partnership contribution amounts requires an AAR

Plain-English summary

Chief Counsel advised that a capital contribution is a partnership item determined at the partnership level. Its amount can affect partner-level tax because cash distributions exceeding outside basis are taxable, and contributions make up much of that basis. The IRS and taxpayer are bound by the amounts on the original Schedule K-1 unless an administrative-adjustment request or TEFRA proceeding changes them. Form 8082 or a substitute therefore was required, although courts disagreed on whether an AAR could be valid without the form.

Ruling snapshot

• Question: How may a partnership change reported capital-contribution amounts that affect a partner's outside basis and gain?
• Outcome: Advice given. Use an AAR on Form 8082 or a substitute, or change the amounts through a TEFRA proceeding.
• Key authorities: IRC §§ 705, 6227, and 6231; Treas. Reg. § 301.6231(a)(3)-1; Nussdorf v. Commissioner.

Full text (IRS public release)

1

ID: CCA-714102-08 Number: 200848033
Office: --------------
Release Date: 11/28/2008

UILC: 6227.01-00

From: -------------------
Sent: Mon 7/14/2008 10:02 AM
To: -------------------
Cc: ---------------------------------------------------------------------------------------------------------------------------
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Subject: RE: AAR

A capital contribution is a partnership item that must be determined at the partnership level. Treas. Reg. 301.6231(a)(3)-1(a)(4)(i) and -1(c)(2). Nussdorf v. Commissioner, -- T.C.-- (2008).

The amount of the contribution can result in tax at the partner level. For instance, if cash is distributed to the partner by the partnership it will be taxable to the partner to the extent it exceeds the partner's outside basis (which is largely composed of contributions under section 705).

In other words, if distributions exceed contributions, the partner is taxable for the difference, and both the government and the taxpayer are bound by these amounts reflected on the original schedule K-1 absent an AAR (Form 8082) or a TEFRA proceeding to change these amounts.

So a Form 8082 (or substitute) would be required. The courts are split on whether a valid AAR can be filed without a Form 8082.