CCA 200910038: Later dissolution did not change the TEFRA audit or tax matters partner

Plain-English summary

No regulatory termination event had occurred, so the C corporation remained tax matters partner for the audit years. The partnership's dissolution in a later year did not affect TEFRA procedures for earlier audit years because those procedures operate like a class-wide audit of partners' partnership items. If an LLC partner received a Schedule K-1 for the second year, TEFRA applied to that year as well. The flow-through partner meant the partnership could not use the section 6231(a)(1) small-partnership exception.

Ruling snapshot

• Question: Did later dissolution or the partnership's composition end the tax matters partner's status or remove the audit years from TEFRA?
• Outcome: Advice given: no, the existing tax matters partner remained and TEFRA continued to apply.
• Key authorities: IRC § 6231(a)(1); Treas. Reg. § 301.6231(a)(7)-1(l)(1); Rev. Rul. 2004-88; Chef's Choice v. Commissioner, 95 T.C. 388 (1990).

Full text (IRS public release)

ID: CCA_2009010716340337 Number: 200910038
Release Date: 3/6/2009
Office: -------------
UILC: 6231.01-01, 6231.07-00

From: --------------------
Sent: Wednesday, January 07, 2009 4:34:06 PM
To: ------------------
Cc: -------------------------------------------------------
Subject: RE: TEFRA Guidance Request

No event has occurred to terminate the status as of the C corp as TMP for the audit years. Status as TMP terminates only as provided in Treas. Reg. 301.6231(a)(7)-1(l)(1). None of the described events (e.g., dissolution of the TMP under state law) has occurred here.

Furthermore, the fact that the partnership dissolved in a subsequent year has no effect whatsoever on the TEFRA procedures for the years in under audit since, technically, the TEFRA partnership procedures are analogous to a type of class action audit of the partners for their partnership items rather than an audit of the partnership as a separate entity. See Chef's Choice v. Commissioner, 95 T.C. 388 (1990). Thus, the subsequent termination of the partnership in a later year is irrelevant.

If the LLC partner received a Schedule K-1 for year 2, TEFRA applies to that year and it is not excluded as a "small" partnership under section 6231(a)(1) from the TEFRA procedures since it has a flow through entity as a partner for at least part of the taxable year. See Rev. Rul. 2004-88.