Loss issues under section 465 may require partnership and partner-level determinations

Plain-English summary

Chief Counsel advised that the IRS should assess losses disallowed at the partnership level and then issue affected-item notices for additional losses disallowed under section 465. The advice explained that section 465 issues can require determinations at both the partnership and partner levels. Partnership-level items include a partner's share of partnership liabilities and whether those liabilities are recourse or nonrecourse. Partner-level items include arrangements with third parties that insulate a partner from loss and whether a partner is a related party under section 465(b)(3).

Ruling snapshot

• Question: Which section 465 loss issues must be addressed at the partnership level and which at the partner level in TEFRA proceedings?
• Outcome: Advice given.
• Key authorities: IRC §§ 465, 465(b)(3), and 6230(a)(1), (a)(2)(A)(i); Hambrose Leasing 1984-5 Ltd. P'ship v. Commissioner, 99 T.C. 298 (1992); Roberts v. Commissioner, 94 T.C. 853 (1990).

Full text (IRS public release)

ID:      CCA_2010011914503354                      Number: 201007057
                                                   Release Date: 2/19/2010
Office: --------------
UILC:    6230.01-00


From: --------------------------
Sent: Tuesday, January 19, 2010 2:50:35 PM
To: ----------------------
Cc: ---------------------------------------
Subject: RE: TEFRA training




The Service would asses the losses disallowed at the partnership level, and then issue affected
item notices for any additional losses disallowed under section 465 grounds. I.R.C. 6230(a)(1),
(a)(2)(A)(i). See August 21, 2009 Chief Counsel Notice, CC-2009-027, question A3 at 3
("Regarding section 465, the Service must make determinations at both the partnership level and
at the partner level. See IRM 8.19.1.6.9.4(2)(d), Issues With Both Partnership and Partner Level
Elements. Partnership-level items include the partners’ shares of partnership liabilities and the
character of the liabilities as recourse or nonrecourse. See Id. Partner-level items include any
arrangements with third parties insulating the partner from loss, and whether a partner is a related
party under section 465(b)(3). See Id.; Hambrose Leasing 1984-5 Ltd. P’ship v. Commissioner,
99 T.C. 298, 308-309 (1992) (whether partners protected against loss is a partner-level issue);
Roberts v. Commissioner, 94 T.C. 853, 861-863 (1990) (“The existence and effect of the side
agreements at issue are not items that a TEFRA partnership must account for under subtitle A in
their books, records, or returns.”).")