CCA 200912021: An information-reporting transcript was not an indirect proof of income

Plain-English summary

Chief Counsel considered the use of income information in a TEFRA partnership examination. An information-reporting transcript containing a taxpayer's Forms W-2 and 1099 was not an indirect method of proving income. By contrast, a bank-deposits analysis could serve as an indirect method. Chief Counsel advised that partnership items would convert to nonpartnership items only if the bank-deposits analysis proved income greater than the income shown by the transcript.

Ruling snapshot

• Question: Did an information-reporting transcript constitute an indirect income method that would convert partnership items to nonpartnership items?
• Outcome: Advice given: no; conversion would occur only if the bank-deposits analysis proved income beyond the transcript amount.
• Key authorities: IRC § 6231; IRM 4.10.4.2.8.

Full text (IRS public release)

ID: CCA_2009021913053954 Number: 200912021
Release Date: 3/20/2009
Office: --------------
UILC: 6231.14-00

From: --------------------------
Sent: Thursday, February 19, 2009 1:05:41 PM
To: -----------------
Cc: --------------------
Subject: RE: Indirect Method of Proof of Income in TEFRA Context

------

It is my understanding that an IRP transcript provides a taxpayer's W-2 and 1099 information. To that end, use of an IRP transcript would not be an indirect method of proof of income. See IRM 4.10.4.2.8, Indirect Method ("The indirect method involves the use of circumstantial evidence to determine the tax liability based on omitted income, overstated expenses, or both. Circumstantial evidence is evidence from which more than one logical conclusion can be reached.").

Thus, partnership items would convert to nonpartnership items only if the bank deposits analysis proves income exceeding that arising from the IRP transcript.

--------