CCA 200913050: Each notice partner's FPAA needed an adequate explanation of adjustments

Plain-English summary

Chief Counsel advised that every notice partner, not only the tax matters partner, was entitled to a final partnership administrative adjustment. The notice needed enough explanation of the grounds for adjustment to avoid shifting the burden of proof to the government under Shea v. Commissioner. The FPAA's remarks could satisfy that requirement, but merely directing partners to an explanation supplied only to the tax matters partner might not. If the remarks were insufficient, each FPAA needed its own explanation. That explanation could be a concise summary rather than a lengthy report, such as a short description of the valuation basis for reallocating sales proceeds.

Ruling snapshot

• Question: Did each notice partner's FPAA need to state the basis for the adjustments rather than refer to an explanation sent to the tax matters partner?
• Outcome: Advice given: yes, but a sufficient remarks section or concise summary could meet the requirement.
• Key authorities: IRC § 6223; Shea v. Commissioner.

Full text (IRS public release)

ID: CCA-121920-08 Number: 200913050
Release Date: 3/27/2009
Office: --------------
UILC: 6223.00-00

From: -------------------
Sent: Friday, December 19, 2008 11:58 AM
To: --------------------
Cc: ---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------
Subject: RE: Each Investor is to receive a copy of Explanation of adjustments

Every notice partner is entitled to the FPAA in addition to the TMP. In addition to the numbers on the Schedule of Adjustment, there has to be sufficient explanation of the grounds for adjustment to avoid having the burden of proof shifted to the government under Shea v. Commissioner. Its possible for the "Remarks" section of the FPAA to satisfy this explanation requirement. If it doesn't, we need to include an explanation of adjustments with every FPAA that is issued. Referring the notice partners to the Explanation of Adjustments given to the TMP may not satisfy our requirement to explain the basis for the adjustments in a notice that can be petitioned.

With the above in mind, the Explanation of Adjustments attached to the FPAA's need not be lengthy or detailed. If we have a 100 page report, we can use a summary Explanation of Adjustment instead. Instead of the complete engineers valuation report, the summary could just state that we determined the fair market value was x instead of y based on an analysis of comparable sales, etc. and that this was the basis for reallocating sales proceeds, etc.