CCA 200912027: State-law management authority determined who could bind a tax matters partner

Plain-English summary

Chief Counsel addressed competing tax matters partner designations involving an entity and its members. A partner named on the return was ineligible because it was not a member-manager, so the actual member-manager with the largest profits interest became tax matters partner under section 6231(a)(7)(B). A separate power-of-attorney designation also was probably invalid if it did not satisfy the regulatory procedure. Only a manager authorized under state law could bind the entity that served as tax matters partner, and another person's tax matters partner designation did not itself supply that authority. That person nevertheless could act for the entity because the state-law manager designation appeared valid.

Ruling snapshot

• Question: Who qualified as tax matters partner, and who had authority to act for an entity serving in that role?
• Outcome: Advice given: the eligible member-manager became tax matters partner, while authority to bind the entity depended on valid state-law manager status.
• Key authorities: IRC § 6231(a)(7)(B); Treas. Reg. §§ 301.6231(a)(7)-1(e), 301.6231(a)(7)-2.

Full text (IRS public release)

ID: CCA_2009022616390737 Number: 200912027
Release Date: 3/20/2009
Office: --------------
UILC: 6231.07-00

From: -------------------
Sent: Thursday, February 26, 2009 4:39:09 PM
To: --------------------
Cc: -----------
Subject: RE: TMP question

1. The TMP designation on the return was invalid since that partner was not a member-manager under
   Treas. Reg. 301.6231(a)(7)-2. The remaining partner (an actual member-manager) would be TMP under the largest profits interest rule of section 6231(a)(7)(B). The POA designation of TMP was probably invalid if it did not comply with Treas. Reg. 301.6231(a)(7)-1(e).

2. Only a manager under state law can act for the TMP itself. The TMP's own TMP will not have such
   power since its TMP designation only gives its TMP certain powers with respect to other members, not the power to bind the state law entity itself - the TMP designation was invalid here as well since the designated person was not member. Nevertheless, that person can act for the TMP entity as its authorized manager under state law since its designation as manager under state law appears valid.