CCA 201014061: IRS discusses partnership-level treatment of a partner's sale

Plain-English summary

Chief Counsel advice discusses how to determine a partner's gain when the partnership treated the partner as having sold an interest in year 1 but later issued a Schedule K-1 for a different year. It states that each year is a separate cause of action, so a later K-1 does not control the determination of gain for year 1 if the partnership treated the interest as sold in that year. If the partnership did not treat the interest as sold in year 1, the IRS would need to issue an FPAA for that year to determine whether the sale occurred then for purposes of computing section 751 gain.

Ruling snapshot

• Question: How should a partnership-level determination address the year in which a partner sold an interest when later reporting conflicts with the partnership's earlier treatment?
• Outcome: Advice given
• Key authorities: IRC §§ 6221 and 751

Full text (IRS public release)

ID: CCA_2010030515290337 Number: 201014061
Release Date: 4/9/2010
Office: ----------
UILC: 6221.00-00

From: -------------------
Sent: Friday, March 05, 2010 3:29:05 PM
To: --------------------
Cc: -----------
Subject: RE: [ -----------------------]

The gain is dependant on whether the partnership treated the partner as having sold his interest in year 1 and the partnership's records of its accounts receivable and other ordinary income assets for that year. Each year is a separate cause of action. So the fact that the partnership may have erroneously issued the partner a Schedule K-1 for a later year, contradicting its treatment of the partner having been terminated in year 1, is irrelevant for purposes of determining gain in year 1. If the partnership did not treat the partner as having sold his interest in year 1, we would have to issue an FPAA for year 1 to determine that the partner in fact sold his interest in that year for purposes of computing his section 751 gain.