CCA 201012049: IRS may rely on reported partnership items when computing a partner's basis

Plain-English summary

Chief Counsel Advice addressed whether the IRS had to issue a final partnership administrative adjustment to two partnerships before determining another partner's basis. The advice stated that the IRS did not have to issue an FPAA to those partnerships, but would be bound by their partnership items when computing the partner's basis under section 705. The advice identified contributions, distributions, and the partner's share of income or losses as partnership items that can affect basis. It also explained that the partner's outside basis in a partnership is computed from partnership items and is not itself generally a partnership item. The IRS may require the partner to provide the Schedule K-1 forms received from the partnerships to substantiate basis.

Ruling snapshot

• Question: Must the IRS issue an FPAA to the partnerships before computing another partner's basis?
• Outcome: Advice given
• Key authorities: IRC §§ 705 and 6231; Roberts v. Commissioner, 94 T.C. 853, 860 (1990)

Full text (IRS public release)

ID: CCA_2010022410540937 Number: 201012049
Release Date: 3/26/2010
Office: ----------
UILC: 6231.05-00

From: -------------------
Sent: Wednesday, February 24, 2010 10:54:11 AM
To: -----------------
Cc: ---------------------------------------------------------------------------------------------------------------------------
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Subject: RE: TEFRA

We do not have to issue an FPAA to B and C but we will be bound by the partnership items of B and C in computing A's basis under section 705. See Roberts v. Commissioner, 94 T.C. 853, 860 (1990).

If we choose not to issue an FPAA to B and C, we will be bound by B and C's reported partnership items in computing A's basis. Generally the partnership items of B that affect A's basis are, as listed under section 705: the contributions to and distributions from B, and A's share of B and C's income/losses. But A's "outside basis" in B is not generally itself a partnership item of B or C. It is just computed based on the partnership items of B and C. We can require A in A's audit to provide the K-1's they received to substantiate their basis.

We only have to issue an FPAA to B or C if we disagree with the reported contributions/distribution or income/loss reported on the Schedules K-1 issued by them.

The above procedures are reflected in the partnership audit manual as recently updated. The Exam team should contact --------------------to get the IRM procedures for this type of audit.