CCA 200913040: A two-corporation partnership qualified for the small-partnership exception

Plain-English summary

Chief Counsel considered whether TEFRA partnership procedures applied to a partnership whose only two partners were foreign C corporations. The advice concludes that the partnership fell within the small-partnership exception unless it had filed an election to be covered by TEFRA. If no election was filed, the IRS should use ordinary non-TEFRA deficiency procedures. A statement on the partnership return claiming that an election had been filed could not support reasonable reliance under section 6231(g) when the IRS knew the statement was false.

Ruling snapshot

• Question: Did TEFRA apply to a two-partner partnership owned by foreign C corporations?
• Outcome: Advice given: use non-TEFRA deficiency procedures unless the partnership actually elected out of the small-partnership exception.
• Key authorities: IRC § 6231(g); TEFRA small-partnership exception.

Full text (IRS public release)

ID: CCA-925329-08 Number: 200913040
Release Date: 3/27/2009
Office: --------------
UILC: 6231.01-01

From: -------------------
Sent: Thu 9/25/2008 3:29 PM
To: -------------------
Cc: -------------------------------------------
Subject: RE: Form 1065 with all Frgn Ptrs.

TEFRA does not apply if the only two partners are C corporations (regardless of whether they are foreign) unless an election out of the small partnership exception was filed. If no such election was filed, we should follow non-TEFRA deficiency procedures. If they state on the partnership return that they filed such an election, but we know that they did not, we cannot "reasonably" rely on the return for this determination under section 6231(g). -----------------------------------------------------------------------------------------
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