Ezel / IRS Rulings / 1241007
Chief Counsel Advice 1241007 Released October 12, 2012 Advice

IRS advises that an LLC owner's partnership items remain partnership items after bankruptcy

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This page covers one taxpayer's ruling from 2012, which can't be cited as precedent. Ask about your situation and see what the current Code and IRS guidance say, with citations.

Currency note: this determination was released in 2012
Statutory amendments, regulation changes, court decisions, or later IRS guidance may have changed the analysis since then. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, threshold, or position mentioned here.
Not precedent. Under 26 U.S.C. § 6110(k)(3), this written determination may not be used or cited as precedent. It resolved one taxpayer's situation on its specific facts, and identifying details were redacted by the IRS before release. The official IRS release (linked on this page as a PDF) is the authoritative source.
About this page: The plain-English summary and ruling snapshot below were written by Ezel based on the official IRS release. The full text is the IRS's own document.
View official IRS release (PDF)

Plain-English summary

The Office of Chief Counsel considered the bankruptcy of a disregarded LLC that was a partner in a TEFRA partnership. The advice states that the bankruptcy would not convert the owner's partnership items into nonpartnership items because the owner's tax liability was not at issue in the LLC's bankruptcy proceeding. It relied on the bankruptcy conversion regulation in Treas. Reg. § 301.6231(a)(7)-1 and the cited Tax Court authority.

Ruling snapshot

  • Question: Does a disregarded LLC partner's bankruptcy convert its owner's partnership items into nonpartnership items?
  • Outcome: Advice given
  • Key authorities: IRC § 6231; Treas. Reg. § 301.6231(a)(7)-1; Third Dividend Dardanos v. Commissioner, 96-2 USTC 50,066 (9th Cir.)

Full text (IRS public release)

ID: CCA_2012090613263737 Number: 201241007
Release Date: 10/12/2012
Office: ---------
UILC: 6231.14-00

From: --------------------
Sent: Thursday, September 06, 2012 1:26:58 PM
To: ---------------------
Cc: ------------
Subject: RE: Bankruptcy of a partner which is a DE.

Where Z owns Y LLC (a disregarded entity) which a partner in TEFRA partnership and Y LLC files for
bankruptcy, this does not cause Z's partnership items to convert to nonpartnership items. See Third
Dividend Dardanos v. Commissioner, 96-2 USTC 50,066 (9th Cir). This is because Z's tax liability is not
at issue in the DE's bankruptcy proceeding and the bankruptcy conversion regulation under Treas. Reg.
301.6231(a)(7)-1 only converts items that are subject to an income tax claim in the bankruptcy proceeding.

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