CCA 1030034: QSubs disqualified a partnership from the small-partnership exception

Plain-English summary

Chief Counsel advice agreed that a qualified subchapter S subsidiary, treated as a disregarded entity, was a pass-through partner. That status disqualified the partnership from the small-partnership exception to the TEFRA rules under Rev. Rul. 2004-88. The advice also concluded that the QSub could be designated as the tax matters partner if it was a separate entity under state law. A deemed liquidation when the S corporation election was made would not affect the designation because it occurred before the designation and only a state-law dissolution would terminate it.

Ruling snapshot

• Question: Did the QSub's status affect the small-partnership exception and tax matters partner designation?
• Outcome: Advice given
• Key authorities: IRC § 6231; Rev. Rul. 2004-88

Full text (IRS public release)

ID: CCA_2010072009035737 Number: 201030034
Release Date: 7/30/2010
Office: ----------
UILC: 6231.01-01

From: -------------------
Sent: Tuesday, July 20, 2010 9:04:02 AM
To: ----------------------------
Cc: -----------
Subject: RE: QSubs: Small Partnership exception and TMP questions

I agree completely with your analysis that a Qsub, in effect a disregarded entity, constitutes a pass-thru
partner and thus disqualifies the partnership from the small partnership exception to TEFRA under Rev.
Rul.2004-88. I also agree that it can be designated as TMP assuming that, at least under state law, it
constitutes a separate entity. The deemed liquidation of the Qsubs when the S corp election was made
should have no effect on the TMP designation both because it occurred before the TMP designation was
made and because only a state law dissolution would terminate a TMP designation.