Ezel / IRS Rulings / 1307007
Chief Counsel Advice 1307007 Released February 15, 2013 Advice

CCA 1307007: Passive-loss characterization is determined at the partnership level

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This page covers one taxpayer's ruling from 2013, 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 2013
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

Chief Counsel Advice addresses how passive-loss issues should be handled when a partnership is examined. The advice states that the partnership-level proceeding determines whether the partnership activity is a trade or business, rental, or portfolio activity, and whether direct partners are limited partners. Those determinations bind direct and indirect partners, including another partnership. Without a partnership-level proceeding, the IRS is bound by how the items appear on the partnership's return and books and records. The advice further states that affected-item deficiency notices would be needed to disallow losses based on a conclusion that ultimate partners did not materially participate.

Ruling snapshot

  • Question: At what level are passive-loss characterization and limited-partner status determined, and what procedure is needed to disallow losses based on nonparticipation?
  • Outcome: Advice given
  • Key authorities: IRC §§ 469, 6221, and 6231; Roberts v. Commissioner, 94 T.C. 853 (1990)

Full text (IRS public release)

ID: CCA_2012113008373237 Number: 201307007
Release Date: 2/15/2013
Office: ---------
UILC: 6221.00-00

From: --------------------
Sent: Friday, November 30, 2012 8:37:53 AM
To: ---------------
Cc: ------------
Subject: RE: FPAA review question

Under Estate of Quick and Sente Investment Club The passive loss determination is bifurcated with the
status of the partnership activity as trade or business, rental, or portfolio income being determined in the
partnership A level. An A level proceeding would also determine the status of the direct partners as
limited partners. That status determination is binding on the direct and indirect partners including
partnership B. In the absence of an A proceeding, we are bound by how the forgoing items are reflected
on Partnership A's return and books and records. See Roberts v. Commissioner, 94 T.C. 853 at 860.

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Ultimately, in order to disallow losses to the ultimate partners based on a passive loss characterization,
we would have to issue affected item notices of deficiency determining that they did not materially
participate.

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