CCA 1041037: The IRS may select a TMP from remaining limited partners after the general partner dissolves

Plain-English summary

Chief Counsel’s advice answers follow-up questions about selecting a tax matters partner under the partnership rules. A partnership’s attempted designation of a limited partner does not count as a valid designation. If the sole general partner dissolved, the IRS may select a tax matters partner from the remaining limited partners after applying the applicable regulatory rules. The advice also concludes that the restriction in section 6231(b)(2) limits the taxpayer’s selection, not the IRS’s ability to select a non-U.S. person.

Ruling snapshot

• Question: How do the tax-matters-partner selection rules apply when a designation is invalid, the sole general partner dissolves, or the remaining partner is a non-U.S. person?
• Outcome: Advice given
• Key authorities: IRC § 6231; Treas. Reg. § 301.6231(a)(7)-1; IRC § 6110(k)(3)

Full text (IRS public release)

ID: CCA_2010092114352937 Number: 201041037
Release Date: 10/15/2010
Office: ----------
UILC: 6231.07-00

From: -------------------
Sent: Tuesday, September 21, 2010 2:35:33 PM
To: ------------------------
Cc: -----------

Subject: RE: Follow up questions

Answers in blue

From: ----------------------------
Sent: Tuesday, September 21, 2010 2:14 PM
To: ---------------------
Subject: Follow up questions

Hi ----. I have a few follow up questions on the selection of TMP issue we spoke about recently:

All references below are to Treas. Reg. 301.6231(a)(7)-1

1. If a partnership attempted to designate a limited partner as the TMP then "the partnership has not
   designated a tax matters partner" under (m)(1)(i), right? Correct.

2. If the sole general partner dissolved at the close of the last taxable period at issue, is the analysis A or
   B below? Both apply and lead to the same result , but the B analysis is slightly off. Under B the
   designation occurred by operation of law, in the absence of a valid designation, rather than by our
   selection, and then terminated when the partner dissolved. Under both scenarios we may select a TMP
   from the remaining limited partners.

A. determine that it is the general partner with the largest profits interest under (m)(2), determine that it is
impracticable to apply the largest profits interest rule because the general partner is disqualified under
(o)(3)(iv) (where TMP "cannot perform the functions of a tax matters partner for any reason"), then apply
(p)(3)(ii) and (q).

B. determine it to be a TMP under the largest profits interest rule (m)(2), determine the TMP selection as
immediately terminated under (m)(3), determine it has no profits interest also under (m)(3), reapply the
largest profits interest rule, determine that it is impracticable to apply the largest profits interest rule under
(o)(2) (where each general partner has no profits interest in the partnership), then apply 301.6231(a)(7)-
1(p)(2) and (q).

3. Section (b)(2) doesn't limit our ability to select a non-US person as TMP, only the taxpayer's ability,
   right? Correct.
    2

If not, in the case at hand, (b)(2) wouldn't limit our ability to select the TMP since the only existing partner
is a non-US person, right? (The general partner dissolved and the limited partner relinquished his
citizenship and moved out of the country.)