CCA 200909050: Partnership adjustments are netted at the partner level

Plain-English summary

Chief Counsel explained why adjustments from multiple partnerships are netted at the partner level when calculating an underpayment. Treasury Regulation section 1.6664-2 compares the tax that should have been shown with the tax actually shown, producing one underpayment figure. Whether the penalty applies at the partnership level then matters under the ordering rules in section 1.6664-3. Because the penalty had already been determined to apply, the related underpayment would not be removed before calculating the penalty.

Ruling snapshot

• Question: How are adjustments from multiple partnerships reflected in a partner's underpayment and penalty calculation?
• Outcome: Advice given: net the adjustments at the partner level, then apply the ordering rules without removing adjustments already determined to be penalized.
• Key authorities: Treas. Reg. §§ 1.6664-2 and 1.6664-3.

Full text (IRS public release)

ID: CCA_2008120913551007 Number: 200909050
Release Date: 2/27/2009
Office: --------------
UILC: 6664.01-00

From: ------------------
Sent: Tuesday, December 09, 2008 1:55:12 PM
To: ------------------------
Cc: ----------------------------------------
Subject: RE: TEFRA (adjustment netting question) ---------

The authority for ------ statement that partnership adjustments from multiple partnerships are netted together at the partner level is found indirectly in the calculation of the underpayment in Treas. Reg.
§ 1.6664-2. The calculation compares the amount of tax that should have been shown (as defined in the regulations) with the amount of tax actually shown (as defined in the regulations) to determine the underpayment (the difference between the two). The determination of the applicability of the penalty at the partnership level becomes relevant in applying the ordering rules of Treas. Reg. § 1.6664-3. Because the penalty has already been determined to apply, any underpayment attributable to those adjustments will not be subtracted out prior to applying the penalty. Please let me know if you have any additional questions.