CCA 201210036: IRS explains direct assessment of a partnership FTC affected item

Plain-English summary

Chief Counsel advice addresses the foreign tax credit's effect on a partner's tax liability in a TEFRA proceeding. The advice states that the calculation is an affected item because it depends on the partnership foreign tax credit shown on the partner's Form K-1, whether originally reported or adjusted. The item may be directly assessed if the tax can be calculated mathematically from the partner's return and Form K-1. An affected-item notice of deficiency is required if the IRS must examine facts beyond the face of those documents.

Ruling snapshot

• Question: When may the foreign tax credit's effect on a partner's tax liability be directly assessed as an affected item?
• Outcome: Advice given.
• Key authorities: IRC §§ 6230(a)(2)(A)(i) and 6231(a)(6); Treas. Reg. § 301.6231(a)(6)-1.

Full text (IRS public release)

ID: CCA_2012020308471737 Number: 201210036
Release Date: 3/9/2012
Office: ----------
UILC: 6231.05-00

From: --------------------
Sent: Friday, February 03, 2012 8:47:31 AM
To: -------------------
Cc: ------------
Subject: RE: TEFRA Issues ---------

There is no question that the calculation of the effect of the FTC on a partner's tax liability is an affected item, i.e., it is affected by the amount of the partnership FTC reflected on the partner Form K-1 (as originally reported or as adjusted in the TEFRA proceeding). It doesn't matter whether we adjusted the FTC in the partnership proceeding - it's effect on the partner return stays an affected item regardless.

Your issue is not whether it is an affected item, but rather whether this affected item can be directly assessed or whether it requires an affected item notice of deficiency to make the assessment. It can be directly assessed if it can be mathematically computed based exclusively on the partner return and his Form K-1 (as originally filed or as adjusted in the TEFRA proceeding). Treas. Reg. 301.6231(a)(6)-1. It will require an affected item notice of deficiency if you must look behind the face of the partner return (e.g., by getting additional supporting schedules from the partner or by asking the partner additional factual questions) to calculate the tax. I.R.C. 6230(a)(2)(A)(i).