CCA 200942047: Partnerships must separately state dividends affecting corporate partners

Plain-English summary

This Chief Counsel Advice states that a partnership must separately state dividend items that may affect partners differently. The advice focuses on dividends relevant to a corporate partner's dividends-received deduction, including dividends from members of the same affiliated group and dividends from foreign corporations. If the partnership failed to make the required separate statement, Counsel advises that a TEFRA proceeding may be needed to determine the allocation between foreign and domestic dividends and between affiliated and non-affiliated domestic corporations. A partial closing agreement may avoid the proceeding if the partner agrees to the allocation.

Ruling snapshot

• Question: Must a partnership separately state dividend categories that affect a corporate partner's dividends-received deduction?
• Outcome: Advice given
• Key authorities: IRC §§ 702(a)(5), 703(a)(1), and 243(a) and (b); Treas. Reg. § 1.703-1(a); TEFRA procedures

Full text (IRS public release)

ID: CCA_2009081116305537 Number: 200942047
Release Date: 10/16/2009
Office: --------------
UILC: 6231.03-00

From: -------------------
Sent: Tuesday, August 11, 2009 4:30:59 PM
To: -------------------
Cc: ------------
Subject: RE: Schedule K-1 Information Return for Partner which is a Corporation / Dividend Received Deduction (DRD) Reporting on TEFRA 1065 and Corporate Partner's K-1 ---------

Section 703(a)(1) requires that the items listed under section 702 be separately stated. Section 702(a)(5) requires the separate computation of "dividends with respect to which . . [section 243(a) and (b)] appl[y]." Treas. Reg.1.703-1(a) also requires the partnership to separately state those items that may affect different partners differently. So the partnership is required by statute to separately state the portion of dividends on line 6b of the Schedule K-1 that came from corporations that are members of the same affiliated group or that came from foreign corporations if that separate statement will affect the dividends received deduction of a corporate partner.

If the partnership did not do that, we may need to open a TEFRA proceeding in order to determine the allocation of Line 6b between foreign corporation dividends and domestic corporation dividends and the division of domestic corporate dividends between affiliated and non-affiliated corporations (unless the partner is willing to sign a partial closing agreement as to this allocation).