CCA 201042036: TEFRA affected-item treatment depends on partner status

Plain-English summary

Chief Counsel addressed whether two tax consequences were affected items under the TEFRA partnership rules. The advice concludes that a tax issue at the corporate level was not an affected item because the corporation was not a partner in the partnership. It also concludes that a deemed gift by a nonpartner to partnership partners was not an affected item as to the nonpartner. Any gift tax would instead be asserted through a non-TEFRA notice of deficiency within the normal assessment period.

Ruling snapshot

• Question: Are a corporate loan recharacterization and a deemed gift by a nonpartner affected items under the TEFRA partnership rules?
• Outcome: Advice given
• Key authorities: IRC § 6231

Full text (IRS public release)

ID: CCA_2010100508410537 Number: 201042036
Release Date: 10/22/2010
Office: ----------
UILC: 6231.05-00

From: -------------------
Sent: Tuesday, October 05, 2010 8:41:11 AM
To: --------------------
Cc: -------------------------------------------------------------
Subject: RE: TEFRA

1. On the issue of whether the recharacterization of a loan by Corp A to Partnership B is an affected item
   as to Corp A: The tax at the Corp A level is not an affected item because Corp A is not a partner in
   Partnership B and is not bound the B's treatment or determination of the amounts received from A.
   Affected items only exist with respect to partners.

2. Since Mom is not a partner in B, any deemed gift by her to the partners of B is not an affected item as
   to her. Thus, any gift tax would be asserted against her through a non-TEFRA notice of deficiency issued
   within her normal (non-TEFRA ) period for assessment.