CCA 201123033: Partnership-level negligence determination can account for innocent managers' defenses

Plain-English summary

This Chief Counsel Advice addresses penalties asserted against a limited liability company treated as a partnership under the TEFRA rules. It states that the partnership appeared negligent, so the penalties should be determined at the partnership level based on the knowledge and conduct of the responsible managers. It also explains that innocent managers may be forgiven their share of the partnership-level penalty if they establish a partner-level defense, such as lack of knowledge or reasonable cause and good faith.

Ruling snapshot

• Question: How should negligence penalties be determined when some managers of a partnership were innocent?
• Outcome: Advice given.
• Key authorities: IRC § 6221; Treas. Reg. § 301.6221-1(d).

Full text (IRS public release)

ID: CCA_2011051108245637 Number: 201123033
Release Date: 6/10/2011
Office: ----------
UILC: 6221.00-00

From: -------------------
Sent: Wednesday, May 11, 2011 8:25:02 AM
To: --------------------
Cc: -----------
Subject: RE: TEFRA - Penalties asserted against LLC

It appears that the partnership was negligent and that as a consequence penalties should be determined at the partnership level based on the knowledge and behavior of the managers responsible for the incorrect reporting. The fact that other managers were innocent can lead to their being forgiven for the partnership-level determination of penalties based on their partner-level defenses to the penalty under Treas. Reg. 301.6221-1(d), e.g., lack of knowledge of the incorrect treatment and reasonable cause/good faith in claiming the items on their Schedule K-1.