CCA 201221017: Chief Counsel addresses a partner’s bad-debt deduction

Plain-English summary

Chief Counsel Advice addressed when the worthlessness of a debt from a partner to a partnership should be determined. The advice said the issue would be decided in the partnership proceeding, not in a later partner proceeding. If the debt were ultimately found to exist and not be worthless, the IRS would have one year after the partnership proceeding to assess the partner's bad-debt deduction under IRC § 6229(d). The advice also said § 6229(f) did not apply on the stated facts.

Ruling snapshot

• Question: In which proceeding should the worthlessness of a partner's debt to the partnership be determined, and when could an assessment follow?
• Outcome: Advice given
• Key authorities: IRC § 6229(d) and § 6229(f)

Full text (IRS public release)

ID: CCA_2012042408344137 Number: 201221017
Release Date: 5/25/2012
Office: ----------
UILC: 6231.03-00

From: -------------------
Sent: Tuesday, April 24, 2012 8:34:50 AM
To: --------------------
Cc: ----------------------------------
Subject: RE: TEFRA Question

Whether the debt from a partner to the partnership became worthless would be determined in the partnership proceeding. Not a later partner proceeding.

Assuming that it is ultimately determined that debt exists and that it is not worthless, we would have one year following the partnership proceeding to make the resulting assessment of the partner's bad debt deduction under section 6229(d). Section 6229(f) has no application to your facts since you have not stated any facts that would cause the partner's items to convert to nonpartnership items.