CCA 200943037: Inconsistent partner filing may resolve an omitted K-1 item

Plain-English summary

This Chief Counsel Advice considers a corporate partner's Schedule K-1 reporting of a dividends-received deduction item. The advice states that the partnership must separately state the portion of the item that comes from affiliated domestic corporations under IRC §§ 702(a)(5) and 703. If the partnership left the relevant K-1 line blank, the Service could treat that as grounds for an inconsistent partner filing under § 6222 and assess the inconsistently reported items without a TEFRA partnership proceeding. The advice also explains that deficiency procedures under § 6230(a)(2)(A) would apply to the affected-item assessment to the extent the disallowance was not purely computational.

Ruling snapshot

• Question: Can the Service address a corporate partner's inconsistent return when the partnership omitted a separately stated dividend item from Schedule K-1?
• Outcome: Advice given
• Key authorities: IRC §§ 243(a), 6222(b)(1)(A)(i), 6230(a)(2)(A), 702(a)(5), and 703; Treas. Reg. § 301.6222(a)-1(a)

Full text (IRS public release)

ID: CCA_2009081308392137 Number: 200943037
Release Date: 10/23/2009
Office: --------------
UILC: 6222.00-00

From: -------------------
Sent: Thursday, August 13, 2009 8:39:25 AM
To: -------------------
Cc: ---------------------------------------------------------------------------------------------------------------------------
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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

I agree that we can make your argument as an alternative to the arguments I set forth in prior e-mails. Section 702(a)(5), in conjunction with section 703, requires that the partnership separately state the portion of line 6b that comes from affiliated domestic corporations. The failure to do so presumably means that there are no such items and, thus, would serve as grounds for asserting an inconsistent partner filing under section 6222, allowing us to assess the inconsistently reported items without conducting a TEFRA partnership proceeding. Deficiency procedures under section 6230(a)(2)(A) would apply to this affected item assessment to the extent the disallowance is not purely computational. So you likely can address the issue in your current deficiency proceeding.

From: -------------------------------------------------------------- Sent: Wednesday, August 12, 2009 4:42 PM To: -------------------- Cc: ---------------------------------------------------------------------------------------------------------------------------
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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

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1. That's a great point about the "(or may be) inconsistent" language in Section 6222(b)(1)(A)(i)!

Thus, in --------- case where the partnership left Line 6b blank, the Service can adjust the corporate partner's return without a partnership proceeding as long as we ultimately use the Section 243(a) dividend information which appears in the supplemental information elsewhere on the partner's F1065 Schedule K- 1 or, as seems most often the case, the Section 243(a) dividend information subsequently supplied by the partnership itself. Your position also seems consistent with Reg. 301.6222(a)-1(a):

The treatment of a partnership item on the partner's return must be consistent with the treatment of that item by the partnership on the partnership return in all respects [emphasis added] including the amount, timing, and characterization of the item."