CCA 200851083: On further thought, a Form 870-PT settlement is the easier route

Plain-English summary

A revised answer, sent the same day as the one it replaces, and the pairing is what makes it instructive.

Both messages carry the same subject line, about a large corporate taxpayer holding in essence the entire interest in a partnership subject to the unified audit regime. The earlier message, released as CCA 0851085, said the Service could grant the taxpayer's administrative adjustment request or convert the partnership items for the corporate group under section 6227(d)(3) and a delegation order. A few hours later the writer returns with "upon further thought" and a simpler recommendation.

The easier route is a settlement agreement on Form 870-PT. A settlement agreement converts the items, the release says, and allows them to be taken into account in computing a deficiency notice outside the partnership regime. That is the whole attraction. Conversion moves the items out of partnership item status and into the partner's own proceeding, so the corporate group's deficiency can be computed and noticed in the ordinary way, with no partnership-level proceeding standing between the examiner and the adjustment.

Why this is easier than the earlier suggestion comes down to who has to act. The writer notes that a revenue agent reviewer at grade GS-12 has authority under paragraph 8 of the attached delegation order to enter into such an agreement. The authority sits with the examination function at a working grade rather than requiring a higher-level decision, so the route can be taken without escalating. The same delegation order, Delegation Order 4-19, was cited in the earlier message, which suggests the writer went back to it and found a cleaner path inside it.

One feature of a settlement agreement is worth naming because the release does not. Conversion by settlement is a bargain rather than a unilateral step: the taxpayer signs, and in exchange the treatment of the items is fixed. CCA 0851093 in this same batch makes the related point that the settlement portion of a Form 870-LT is a separate document, separately executed, and as binding as a closing agreement. So the easier route is easier procedurally, not cost-free, because it requires the taxpayer's agreement to terms.

The release records a working judgment rather than a considered position. It opens with a second thought, uses "I think," and identifies the route as the easiest way to handle the matter rather than the only correct one.

This is a clean digital release rather than a scan, so no OCR correction was needed. Kept as released: "non-TEFRRA" with the doubled letter; the space before the colon in "Attachment : Del. Ord. 4-19"; and the subject line abbreviation "Large Corp. t/p."

Ruling snapshot

• Question: What is the simplest way to handle the adjustment for a corporate group holding essentially the entire interest in a partnership subject to the unified audit regime?
• Outcome: Advice given, revising the writer's earlier answer in the same thread. A settlement agreement on Form 870-PT is the easiest route: it converts the items and allows them to be taken into account in computing a deficiency notice outside the partnership regime. A revenue agent reviewer at grade GS-12 has authority to enter into such an agreement under paragraph 8 of Delegation Order 4-19.
• Key authorities: IRC section 6224(c); Form 870-PT; Delegation Order 4-19, paragraph 8.

Full text (IRS public release)

ID: CCA-991303-08 Number: 200851083
Office: -------------- Release Date: 12/19/2008

UILC: 6224.01-01

From: -------------------
Sent: Tue 9/9/2008 1:03 PM
To: ----------------
Cc: ---------------------------------------------------------------------------------------------------------------------------
-------------------------
Subject: RE: Question re: Large Corp. t/p holding in essence entire interest in TEFRA partnership

Upon further thought, I think the easiest way to handle this is through a settlement agreement using Form
870-PT. A settlement agreement converts the items and allows them to be taken into account in
computing a non-TEFRRA deficiency notice. A revenue agent reviewer GS-12 has authority under
paragraph 8 of the attached delegation order to enter into such an agreement.

Attachment : Del. Ord. 4-19