CCA 200911020: K-1 inconsistencies generally permitted direct assessment

Plain-English summary

A partnership item included on an attachment to Schedule K-1 is part of the Schedule K-1. When a partner reports inconsistently with that schedule, section 6222 generally permits the IRS to assess the difference directly. That inconsistency removes section 6225's assessment restriction but does not remove other restrictions, including rules for affected items that require partner-level determinations. An inconsistent gain or loss should be computational and would not require an affected-item notice of deficiency, but Chief Counsel needed more facts to advise on the circular partnership structure mentioned in the request.

Ruling snapshot

• Question: Could the IRS directly assess partnership items reported inconsistently with an attached Schedule K-1?
• Outcome: Advice given: generally yes, unless the adjustment is an affected item requiring partner-level determinations.
• Key authorities: IRC §§ 6222, 6225, and 6230(a)(2).

Full text (IRS public release)

ID: CCA_2009020213474137 Number: 200911020
Release Date: 3/13/2009
Office: --------------
UILC: 6222.00-00

From: -------------------
Sent: Monday, February 02, 2009 1:47:45 PM
To: --------------------
Cc: -----------
Subject: RE: Circular Linkage on 1065s

Any partnership item included on an attachment to the Schedule K-1 is part of the Schedule K-1 itself. To the extent a partner files inconsistently with his Schedule K-1, we can directly assess the difference under section 6222, unless the assessment would constitute an affected item requiring partner-level determinations under section 6230(a)(2)(A)(i). In other words, inconsistent filing eliminates the restriction on assessment under section 6225, but not any other restriction that may apply. If the inconsistent item is an item of gain or loss, this should be purely computational, not requiring an affected item notice of deficiency under section 6230(a)(2).

I have not seen the circular partnership structure mentioned below and would need further facts before I could opine on the correct procedure.