CCA 200851053: A concession by the partnership is not a determination, and the determination is what mitigation needs

Plain-English summary

Three short paragraphs, each removing a shortcut someone hoped to take. The setting is a partnership adjustment that has to be turned into something with legal force before a correction in another year can ride on it.

The first point is about who can be bound. The partnership conceded an issue, and the question was whether the Service can simply assess on the strength of that concession. The writer does not see how. A partnership cannot bind any partner, so the concession does not reach the people who owe the tax. Either a notice of final partnership administrative adjustment issues, which is the formal instrument that starts the clock for partners to contest a partnership-level determination, or every affected partner signs an agreement. The writer adds that a partnership has no power to waive the restrictions on assessment for its partners where there are fewer than 100 of them, which marks off the arrangements under which a partnership representative can bind partners who have not individually agreed. No section is cited for that limit.

The second point is procedural and comes with a complaint attached. If the fee deduction arrived through an administrative adjustment request, the partnership's own request to change items already reported, then the determination needed here could be the Service's letter stating which part of the request is allowed and which is disallowed. The writer flags in a parenthesis that whether this is in fact the posture was left out of the facts they were given, which is a pointed observation about the question rather than an answer to it. And a letter of that kind does not become final immediately: the writer reads section 1313(a)(3)(B) as putting finality two years off.

The third point explains why finality matters. The mitigation provisions exist to let a year otherwise closed by the limitations period be corrected where a determination in another year creates an inconsistency, and they apply notwithstanding any other law or rule of law. That phrase is broad, and the writer leans on it: once the concession is reflected in a final determination under section 1313, the Service is free to make the taxpayer favorable adjustment any way it wants. But the freedom is on the far side of the determination. Until one exists, there is nothing for mitigation to work from, which is what ties the three paragraphs together.

The release gives no citation for the partnership rules it relies on and does not identify the years, the fee deduction, or the adjustment ultimately contemplated. Compare 0851083 in this batch, on using a settlement agreement to convert partnership items so a deficiency notice can issue.

This is a clean digital release rather than a scan, so no OCR correction was needed. Kept as released: "FPAA" and "AAR" unexpanded; "in partnership with less than 100 partners" without the article; the quotation marks around "final" and around the statutory phrase; and the missing full stop after the citation to section 1313(a)(3)(B).

Ruling snapshot

• Question: Can the Service assess on a partnership's concession, and what supplies the final determination the mitigation provisions require?
• Outcome: Advice given. No. The partnership cannot bind any partner, so assessment requires a notice of final partnership administrative adjustment or an agreement from all affected partners, and a partnership with fewer than 100 partners has no power to waive restrictions on assessment for them. If the deduction came in under an administrative adjustment request, the Service's letter allowing and disallowing parts of it could be the determination, but it would not become final until two years later under section 1313(a)(3)(B). Once the concession is reflected in a final determination under section 1313, the mitigation provisions apply notwithstanding any other law or rule of law and the taxpayer favorable adjustment can be made any way the Service wants.
• Key authorities: IRC section 1313 and section 1313(a)(3)(B); the mitigation provisions generally. The partnership procedures relied on are described without citation.

Full text (IRS public release)

ID: CCA_2008102716182037 Number: 200851053
Office: ---------------------------- Release Date: 12/19/2008

UILC: 1313.01-00

From: -------------------
Sent: Monday, October 27, 2008 4:18:21 PM
To: -----------------
Cc: ------------------------------------------------------------ Subject: RE: AAR

I think we need to issue an FPAA for --------------- that reflects the determination since the partnership cannot bind any partner - you state that the partnership conceded that issue but I don't see how we can assess that concession without an FPAA or an agreement from all the partners who will be affected. The partnership has no power to waive restrictions on assessment for the partners in partnership with less than 100 partners.

If the fee deduction came in under an AAR (the critical fact of whether this is the procedural posture was left out of the facts below) the determination could be our letter setting forth which part of the AAR is allowed and which part is disallowed. This determination would not become "final", however, until two years later under section 1313(a)(3)(B)

The mitigation provisions apply "notwithstanding any other law or rule of law", so we are free to make the taxpayer favorable adjustment any way we want once the concession for --------------- is reflected in a final determination under section 1313.