CCA 200851103: Four short answers about two Schedules K-1

Plain-English summary

This release is a reply to a numbered list of questions that is not itself part of the release, so what survives is four answers without their questions. Even so, three of them state real positions and the fourth is worth reading.

The first answer says that issuing two Schedules K-1 is appropriate, because the regulations under sections 702 and 703 require the partnership to separately state items that affect partners differently. That is the core of subchapter K reporting. A partnership does not simply report one bottom-line number, because the character of an item can matter to one partner and not another. Capital gains, charitable contributions, foreign taxes, tax-exempt interest and similar items are pulled out and passed through with their character intact, so that each partner applies their own situation to them. Where circumstances during the year mean a single K-1 would blur that, two are the right answer.

The second answer is one word, "moot," which means the question fell away once the first was answered.

The third says the allocation is a partnership item. In the audit regime then in force, that classification decided where the fight happens. Partnership items were determined in a single proceeding at the partnership level and bound every partner, rather than being litigated partner by partner. Calling an allocation a partnership item takes it out of the individual partner's return and puts it in the partnership case.

The fourth follows from the third. Form 872-P is the consent used to extend the time to assess tax attributable to partnership items. The answer says the changes at issue are covered by the form already executed, which is a limitations question rather than a substantive one. If the changes were outside its scope, the extension would not reach them and the assessment period could have run.

The attachment named in the release, a document on Form 8082 background, is withheld. Form 8082 is how a partner notifies the Service of treatment inconsistent with the partnership's return or requests an administrative adjustment, so the withheld attachment likely bears on how the reporting positions in question were raised.

The citation in the first answer deserves a note. It reads "See Katz v. Commissioner, (8th Cir)," with no volume, reporter, page or year. As released, it cannot be pinned to a specific decision from the document alone. It is transcribed here exactly as it appears rather than completed.

This is a clean digital release rather than a scan, so no OCR correction was needed. Kept as released: the lower-case openings of answers (2) and (3); the stray comma before "(8th Cir)"; and the missing period at the end of each of the four answers.

Ruling snapshot

• Question: Should the partnership issue two Schedules K-1, is the allocation a partnership item, and do the changes fall within the executed consent to extend assessment?
• Outcome: Advice given. Two Schedules K-1 are appropriate because the regulations under sections 702 and 703 require separate statement of items affecting partners differently; the allocation is a partnership item; and the changes are covered by the Form 872-P. One question was answered as moot.
• Key authorities: IRC sections 702, 703; Katz v. Commissioner (8th Cir.), cited in the release without a reporter citation or year; Form 872-P; Form 8082.

Full text (IRS public release)

ID: CCA-102311-08 Number: 200851103
Office: -------------- Release Date: 12/19/2008

UILC: 702.01-00

From: -------------------
Sent: Thu 10/23/2008 11:05 AM
To: --------------------
Cc: ---------------------------------------------------------------------------------------------------------------------------
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Subject: ------

(1) Two K-1's are appropriate since the regulations under section 702 and 703 require the partnership to
separately state items that affect partners differently. See Katz v. Commissioner, (8th Cir).

(2) moot

(3) the allocation is a partnership item

(4) The changes are covered by the Form 872-P

Attachment: Form8082Background.doc [Redacted]