CCA 1138036: LLC member may serve as TEFRA tax matters partner without becoming an LLC manager

Plain-English summary

Chief Counsel Advice addressed whether an LLC member could be designated as the tax matters partner (TMP) for a TEFRA partnership audit without becoming a manager of the LLC. The advice stated that, in a manager-managed LLC, all members are deemed member-managers eligible for TMP designation, assuming the person is a qualified member under the regulations. A TMP represents the other members in the TEFRA audit, and the designation does not make the person an LLC manager because the LLC itself is not a party to the TEFRA proceeding. The advice stated that a possible operating-agreement violation would not limit the TMP's federal powers, while noting a caveat if the IRS knows the TMP is violating fiduciary duties.

Ruling snapshot

• Question: Does serving as a TEFRA tax matters partner make an LLC member a manager of the LLC?
• Outcome: advice given
• Key authorities: IRC § 6231(a)(7); Chef's Choice v. Commissioner, 95 T.C. 388 (1990); River City Ranches

Full text (IRS public release)

ID: CCA_2011071110211737 Number: 201138036
Release Date: 9/23/2011
Office: ----------
UILC: 6231.07-00

From: -------------------
Sent: Monday, July 11, 2011 10:21:22 AM
To: -------------------------
Cc: ------------------------------------------------------
Subject: RE: Informal Advice Requested at your Convenience

Your situation is typical. An LLC can be member-managed or manager-managed. In the case of a
manager-managed LLC, all members are deemed member-managers eligible to be designated as Tax
Matters Partner. A TMP designation is a designation of a member to represent the other members in a
TEFRA partnership audit of the members. It is not a designation to be a manager of the LLC itself which
is not even a party to the TEFRA partnership proceeding. See Chef's Choice v. Commissioner, 95 T.C.
388 (1990)(TEFRA proceeding is a group audit of the partners and the partnership entity is not a party to
such proceeding). Thus, assuming the person designated was actually a qualified member under the
regulations, it was eligible to be designated as the representative of the other partners under federal law
for purposes of the TEFRA audit. I.R.C. 6231(a)(7). Acting as such does not make it a "manager" of the
LLC contrary to the LLC's operating agreement. Any arguable violation of the operating agreement by the
TMP might at best create a cause of action by members of against each other, but would not limit the
TMP's powers under the TEFRA partnership provisions to represent the partners in the audit. But see
River City Ranches (if IRS is aware that TMP is acting in violation of his fiduciary duty to other partners,
IRS may not be able to rely on TMP).