CCA 200939026: Outside basis generally was not a partnership item without a section 754 election

Plain-English summary

An IRS attorney analyzed whether a partner's outside basis was a partnership item for purposes of a partnership proceeding. The attorney advised that outside basis generally was not a partnership item when the partnership had not made a section 754 election, although most components of outside basis, including contributions, were partnership items. The attorney concluded that the contributions therefore had to be determined in the partnership proceeding to determine the partners' outside bases. The released text ends mid-citation.

Ruling snapshot

• Question: Was a partner's outside basis a partnership item absent a section 754 election, and where should contributions be determined?
• Outcome: Advice given.
• Key authorities: IRC §§ 6231, 705, and 754; Treas. Reg. § 301.6231(a)(3)-1(a)(3); Dial USA v. Commissioner, 95 T.C. 1 (1990); Roberts v. Commissioner, 94 T.C. 853, 860 (1990); University Heights v. Commissioner, 97 T.C. 278 (1991).

Full text (IRS public release)

ID: CCA_2009072909104837 Number: 200939026
Release Date: 9/25/2009
Office: --------------
UILC: 6231.03-00

From: -------------------
Sent: Wednesday, July 29, 2009 9:10:48 AM
To: ----------------------
Cc: -----------
Subject: RE:

A partner's outside basis is generally not a partnership item in the absence of a section 754 election. See Treas. Reg. 301.6231(a)(3)-1(a)(3)(754 election makes outside basis a partnership item). See Dial USA v. Commissioner, 95 T.C. 1 (1990)

In the absence of such an election (or similar election) outside basis is generally not a partnership item. Almost all of the components or a partner's outside basis (including contributions to the partnership) are partnership items, however. Compare section 705 with the regulations you cite. Both the taxpayer and the government are bound by the partnership's reporting of these items that go into outside basis absent a TEFRA proceeding to determine these amounts. See Roberts v. Commissioner, 94 T.C. 853, 860 (1990).

So you are correct that you must determine the contributions in the partnership proceeding in order to determine the partners' outside bases. See Nussdorf v. Commissioner (contributions are partnership items); University Heights v. Commissioner, 97 T.C. 278 (1991)(components of outside basis properly determined in TEFRA proceeding; Allen Family Foods v. Commissioner, T.C. Memo.