CCA 200944031: Partnership-return items bind partners absent a TEFRA proceeding

Plain-English summary

This Chief Counsel Advice considers whether a partner is bound by a partnership item reported on the partnership return when the Service does not conduct a TEFRA proceeding for that return. It states that an FPAA issued to the partner would not permit the contribution amount reported on the partnership return to be changed in the partner's separate proceeding. To change that amount, the Service would have to issue an FPAA to the partnership. The Advice also states that IRC § 704(d) applies to the partnership, while § 465 does not apply to partnerships and would instead be asserted against individual partners through affected-item notices of deficiency after the partnership proceeding.

Ruling snapshot

• Question: Can the Service change a partnership-return contribution amount in a separate proceeding against a partner?
• Outcome: Advice given
• Key authorities: IRC §§ 465, 704(d), 6231; Treas. Reg. § 301.6231(a)(3)-1(c)(2); University Heights v. Commissioner, 97 T.C. 278 (1991); Hambrose v. Commissioner, 99 T.C. 298, 310 (1992)

Full text (IRS public release)

ID: CCA_2009082012461537 Number: 200944031
Release Date: 10/30/2009
Office: --------------
UILC: 6231.03-00

From: -------------------
Sent: Thursday, August 20, 2009 12:46:16 PM
To: -----------------
Cc: -----------
Subject: RE: TEFRA

At page 860 of Roberts the court held that the partner will be bound by the partnership items reported on the partnership return if we do not conduct a TEFRA proceeding for the partnership return. So if you issue an FPAA to ------------(the partner), the partner proceeding for ----------- will be bound by the contribution amount reflected on the partnership return of -----. This is a partnership items of ----- binding on its partners. Treas. Reg. 301.6231(a)(3)-1(c)(2). Since we are bound by this contribution amount reflected on ----- return in the ----------- proceeding, this amount (as reported on ------s return) cannot be changed to a different number in ------------s own separate proceeding. See University Heights v. Commissioner, 97 T.C. 278 (1991). So if your ----------- proceeding is dependant on our changing the amount of this item reported on the ----- return, you would have to issue an FPAA to ------ in order to change the reported contribution amount. See also Nussdorf v. Commissioner (full T.C. opinion issued last year on this point)

Section 704(d) applies to -----------, but section 465 does not apply to partnerships such as -----------. Hambrose v. Commissioner, 99 T.C. 298, 310 (1992)(465 applies only to individuals and C corps). Section 465 would be asserted against the individual partners of ----------- through affected item notices of deficiency issued to them within one year of the completion of the partnership proceeding.

Call me -------------------- if you would like to discuss any of these points.