Kicked-out partner may automatically become tax matters partner

Plain-English summary

Chief Counsel advice stated that if a kicked-out partner was a member-manager during the audit year, that partner was automatically the tax matters partner under the largest-profits-interest rule. It recommended issuing generic tax matters partner NBAP and FPAA documents, notices to the specifically named tax matters partner, and notices directly to indirect partners. The advice also stated that bankruptcy of the tier entity through which the partners held their interests did not change that result, and that a tax matters partner was not needed for audit purposes if the partnership controller supplied all needed information.

Ruling snapshot

• Question: What notices and tax matters partner treatment apply when a member-manager partner is removed and indirect partners hold interests through a bankrupt tier entity?
• Outcome: advice given
• Key authorities: IRC § 6231(a)(7); Treas. Reg. §§ 301.6231(a)(7)-2 and -1(m); Third Dividend Dardanos v. Commissioner, 96-2 USTC 50,385 (9th Cir.)

Full text (IRS public release)

ID: CCA_2010021609501737 Number: 201011028
Release Date: 3/19/2010
Office: ----------
UILC: 6231.07-00

From: -------------------
Sent: Tuesday, February 16, 2010 9:50:19 AM
To: ------------------------
Cc: -----------
Subject: RE: TMP designation

If the kicked out partner was a member-manager for the year of audit, he is automatically the TMP under the largest profits interest rule. Treas. Reg. 301-6231(a)(7)-2 and -1(m).

Issue a generic TMP NBAP and FPAA in addition to notices to this specifically named TMP. Also, issue notices directly to the indirect partners. The bankruptcy of the tier entity through which they held their interests does not convert them out. See Third Dividend Dardanos v. Commissioner, 96-2 USTC 50,385 (9th Cir).

You don't need a TMP for audit purposes if the partnership controller is providing all the needed information.