CCA 200919049: LLC tax election controlled the small-partnership exception

Plain-English summary

Chief Counsel advised that a partnership with two corporate partners qualified for the small-partnership exception to the TEFRA partnership rules if an LLC partner had elected to be taxed as a C corporation and the partnership had made no TEFRA election. Without a Form 8832 election, the LLC would default to disregarded-entity status. The LLC would then be a pass-through entity partner, causing the partnership to fall automatically under the TEFRA partnership provisions. The distinction therefore depended on whether the LLC made the corporate tax election.

Ruling snapshot

• Question: Did an LLC partner's tax classification determine whether a two-partner partnership qualified for the TEFRA small-partnership exception?
• Outcome: Advice given: corporate status supported the exception, while disregarded-entity status made TEFRA apply.
• Key authorities: IRC § 6231(a)(1); Rev. Rul. 2004-32; Form 8832.

Full text (IRS public release)

ID: CCA_2009010515522337 Number: 200919049
Release Date: 5/8/2009
Office: --------------
UILC: 6231.01-01

From: -------------------
Sent: Monday, January 05, 2009 3:52:25 PM
To: --------------------
Cc: -----------------------------
Subject: RE: TEFRA Determination

If the LLC partner has elected to be taxed as a C Corporation, and no TEFRA election was made, the partnership falls under the small partnership exception to TEFRA under section 6231(a)(1) since both partners are C corporations.

An LLC partner will automatically default into a disregarded entity ("DE"), however, unless it files an election to be taxed as a C corporation using Form 8832. If no Form 8832 has been filed, then the DE status of the LLC partner will cause the partnership to automatically be subject to the TEFRA partnership provisions since it will have a pass-thru entity (the LLC DE) as a partner. See Rev. Rul. 2004-32.