CCA 200913038: Indirect partners could request direct notice of the TEFRA proceeding

Plain-English summary

Chief Counsel addressed TEFRA notice questions involving an LLC owned by a grantor trust. The trust's income and losses were reported directly on the grantors' return, making the grantors indirect partners to whom the partnership items ultimately flowed. Because the same people received the items whether the LLC or the trust was identified as the direct partner, the writer viewed the naming issue as moot apart from a clerical error in an employer identification number. Section 6223(c)(3) also allowed an indirect partner to ask for treatment as a direct partner for notice purposes, and the writer said an amended individual return arguably made that request.

Ruling snapshot

• Question: Did the identity of the direct partner affect who received the partnership items or TEFRA notices?
• Outcome: Advice given: the flow-through issue was moot, and the indirect partners could ask to receive notice as direct partners.
• Key authorities: IRC § 6223(c)(3); Sente Investment Club v. Commissioner, 95 T.C. 243 (1990).

Full text (IRS public release)

ID: CCA-918421-08 Number: 200913038
Release Date: 3/27/2009
Office: --------------
UILC: 6223.02-00

From: -------------------
Sent: Thu 9/18/2008 4:21 PM
To: ----------------------
Cc: ---------------------------------------------------------------------------------------------------------------------------
-------------------------
Subject: RE: Tefra Questions

There does not seem to be a dispute that --------------------------------- LLC is a partner in -----------. There does not seem to be a dispute that the -------------------Trust is the sole owner of ------------------, LLC. There does not seem to be a dispute that the trust is a grantor trust with all of its income/losses reported directly on the --------- return. There does not seem to be a dispute that the --------- are indirect partners to who the income/losses would ultimately flow under Sente Investment Club v. Commissioner, 95 T.C. 243 (1990). I don't read the original Schedule K-1 as being inconsistent with any of the above, other than a clerical error in the EIN.

Since the --------- get the items regardless of whether ------------------- or ------- Trust is listed as the direct partner -- the issue you raise appears moot. Furthermore, under section 6223(c)(3) and indirect partner can ask to be treated as a direct partner for notice purposes. The Form 1040X arguably does this.

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