CCA 200923040: Partnership with three corporate partners fell outside TEFRA absent an election

Plain-English summary

Chief Counsel advised that a partnership with three C corporation partners would not be subject to TEFRA unless it elected out of the small partnership exception. Section 6231(g) makes reasonable reliance on the partnership return dispositive when deciding that TEFRA does not apply. The advice says that reliance is evaluated at the beginning of the audit, not at its end.

Ruling snapshot

• Question: Was a partnership with three C corporation partners subject to TEFRA procedures?
• Outcome: Advice given, not absent an election out of the small partnership exception
• Key authorities: IRC § 6231(g); Treas. Reg. § 301.6231(a)(1)-1(b)(2); Harrell v. Commissioner, 91 T.C. 242 (1988)

Full text (IRS public release)

ID: CCA_2009032016014437 Number: 200923040
Release Date: 6/5/2009
Office: --------------
UILC: 6231.01-01

From: -------------------
Sent: Friday, March 20, 2009 4:01:46 PM
To: ----------------------
Cc: ----------------------------------------------
Subject: RE: TEFRA determination

---------------------------------------------------------------------------------------You may need to check with ----- and ---
---------------- (--------------------------- is a good contact). A partnership with 3 C corps would not be subject to TEFRA absent an election out of the small partnership exception under Treas. Reg. 301.6231(a)(1)- 1(b)(2).

Section 6231(g) says that reasonable reliance on the partnership return to determine that TEFRA does not apply will be dispositive. That reliance would be determined at the beginning of the audit rather than at the end. See Harrell v. Commissioner, 91 T.C. 242 (1988).

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