CCA 201016066: TEFRA penalties are determined at partnership level but computed and assessed against partners

Plain-English summary

Chief Counsel Advice explains how penalties are handled in a TEFRA partnership proceeding. The penalty is determined at the partnership level, but the related underpayment is not. The partnership proceeding establishes that the penalty applies to partners based on matters such as partnership negligence or overvaluation of a partnership asset, without computing the penalty at the partnership level. After the proceeding, the Service computes the penalty and assesses it against the partner as a computational adjustment.

Ruling snapshot

• Question: How are penalties determined, computed, and assessed in a TEFRA partnership proceeding?
• Outcome: Advice given
• Key authorities: IRC § 6221; Stobie Creek; Desmet/Domuliwicz

Full text (IRS public release)

ID: CCA_2010031815030037 Number: 201016066
Release Date: 4/23/2010
Office: ----------
UILC: 6221.00-00

From: -------------------
Sent: Thursday, March 18, 2010 3:03:03 PM
To: ---------------
Cc: -----------
Subject: RE:

Penalties are determined at the partnership level but the underpayment is not. See Stobie Creek. We just determine in the TEFRA proceeding that the penalty applies to the partners based on the partnership's negligence, overvaluation of a partnership asset, etc. No actual computation of the penalty is done at the partnership level. Id. The TEFRA decision just states that the penalty shall apply to any underpayment of tax attributable to the partnership item adjustments. The penalty is then computed by the Service after the partnership proceeding is completed and assessed against the partner as a computational adjustment. See the recent 7th Circuit opinion on this issue in Desmet/Domuliwicz. Call me if you want to discuss.