CCA 201116022: IRS discussed a trust's status as a tax matters partner

Plain-English summary

Chief Counsel Advice addressed whether a trust could remain the tax matters partner (TMP) of a partnership for a TEFRA proceeding. The IRS stated that a trust may be designated as TMP even if it is a disregarded entity, and that it remains the TMP if the designation was valid and the trust has not filed for bankruptcy. The memorandum also discussed an ownership interest contributed to the trust and stated that the trustee acts for the trust. As a practical matter, it advised dealing with the owner whose interest produces tax consequences from the proceeding.

Ruling snapshot

• Question: Can a trust remain the partnership's tax matters partner, and who should act for it in the TEFRA proceeding?
• Outcome: Advice given
• Key authorities: IRC § 6231; Rev. Rul. 2004-88; Treas. Reg. § 301.6231(c)-7

Full text (IRS public release)

ID: CCA_2011032308381837 Number: 201116022
Release Date: 4/22/2011
Office: ----------
UILC: 6231.07-00

From: -------------------
Sent: Wednesday, March 23, 2011 8:38:28 AM
To: -------------------
Cc: -----------
Subject: RE: TEFRA quandry

1. A trust may be designated as TMP, even if it is a disregarded entity, and its appears that it was validly
   designated and has not filed for bankruptcy. Thus, it remains the TMP under Rev. Rul. 2004-88 and cannot be replaced by the Service.

2. It appears that the -- percent owner may have contributed his interest to the trust so that the trust is
   now the -- percent owner. It was not necessary for the former partner to sell his interest in order for the trust to take over the ---percent interest.

3. Because the trust is a separate entity for TMP purposes under the above Rev. Rul. it remains as TMP
   unless it has also filed for bankruptcy.

4. The trustee of the trust will act for the trust, however the trustee is appointed.

As a practical matter, however, you should deal exclusively with the --- percent owner since it is the only one who will have tax consequences from the TEFRA partnership proceeding. The -- percent interest flows through the trust to a bankrupt indirect partner who is now no longer a party to the TEFRA proceeding since his partnership items have converted to nonpartnership items under Treas. Reg. 301.6231(c)-7. Thus, the TMP would be acting as an agent solely for the --- percent partner. ----------------
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