CCA 200930040: Form 870-LT Part II is not needed to assess partnership penalties

Plain-English summary

This Chief Counsel Advice addresses the consequences of an unexecuted Part II of Form 870-LT, which concerns a partnership settlement. The advice states that the IRS generally has one year after co-executing the forms to assess partnership items and issue affected-item notices subject to deficiency procedures. Part II is not needed to assess penalties because partner-level penalty defenses are not subject to deficiency procedures under IRC § 6230(a)(2)(A)(i). A tier entity partner is authorized under IRC § 6224(c)(1) to bind indirect partners to partnership items, but it cannot sign Part II. Affected-item notices may be issued outside the one-year period in IRC § 6229(f) if the indirect partners' statutes remain open.

Ruling snapshot

• Question: What can the IRS assess or notify when Part II of Form 870-LT was not executed by the proper partner?
• Outcome: Advice given.
• Key authorities: IRC §§ 6230(a)(2)(A)(i), 6224(c)(1), and 6229(f)

Full text (IRS public release)

ID: CCA_2009060908292937 Number: 200930040
Release Date: 7/24/2009
Office: --------------
UILC: 6224.01-01

From: -------------------
Sent: Tuesday, June 09, 2009 8:29:34 AM
To: --------------------
Cc: ------------------------------------------------------------------ Subject: RE: Form 870-LT page 2 not executed

We generally have one year from the date we co-execute the Forms 870-LT to assess partnership items and issue affected items notices of deficiency for affected items subject to deficiency procedures. We don't need Part II of the form to assess penalties since penalty defenses at the partner level are not subject to deficiency procedures under section 6230(a)(2)(A)(i). We generally would have to issue affected item notices for further at risk limitations on partnership losses and similar issues.

A tier entity partner cannot sign Part II of the Form since the tier is only authorized under section 6224(c)(1)(last sentence) to bind indirect partners to partnership items. So even if Part II had been signed by the tier partner, it would be ineffective.

If the indirect partners otherwise have open statutes for the year in issue we may be able to issue affected item notices outside the one year period of section 6229(f).