CCA 201020015: Counsel discussed assessment procedures for inconsistent partnership reporting

Plain-English summary

In an internal Chief Counsel email concerning another TEFRA question, the sender addressed indirect partners holding an interest in one partnership through another partnership. The email states that the indirect partners may be assessed when their reporting of the lower-tier partnership items is inconsistent, subject to the required assessment procedure and the facts. If a bad-debt deduction is clearly identified on the upper-tier return as the same liability reported on the lower-tier return, disallowance may be a directly assessable computational adjustment under IRC § 6222. If that connection is not obvious from the return, the IRS may need to issue an affected-item notice or FPAA to the upper-tier partnership to make the partner-level factual determination.

Ruling snapshot

• Question: How may the IRS assess partners when partnership returns report inconsistent treatment of the same item?
• Outcome: Advice given
• Key authorities: IRC § 6222

Full text (IRS public release)

ID: CCA_2010041613493737 Number: 201020015
Release Date: 5/21/2010
Office: ---------
UILC: 6222.03-00

From: --------------------
Sent: Friday, April 16, 2010 1:49:39 PM
To: --------------------
Cc: ------------
Subject: RE: Another TEFRA question ---------

As long as all assessments are consistent with the treatment by Y we can assess the indirect partners holding an interest in Y through X, based on inconsistent reporting by them of Y's partnership items. The required assessment procedure, however, may not be clear depending on your facts. Disallowing X's bad debt deduction because it is inconsistent with Y's reporting may be a directly assessable computational adjustment under section 6222 if the bad debt is clearly identified on the X return as the same liability reported on the Y return as a valid continuing liability. If, on the face of the X return this association is not obvious, we may have to issue an affected item notice of FPAA to X to make the partner-level factual determination that the treatment is inconsistent with a reported Y partnership item.