Partnership reporting controls passive-loss refund claims

Plain-English summary

Chief Counsel Advice addresses how partnership reporting affects passive-loss refund claims. It says the character of partnership income or loss is a partnership item, so changing the character originally reported on the partnership return must be made through a timely administrative adjustment request under section 6227. The memo treats the passive-loss rules as an affected item with a partnership-level component and a partner-level material-participation component. A partner pursuing the partner-level component remains bound by the partnership-level reporting.

Ruling snapshot

• Question: How do partnership-item and partner-level components affect a partner's refund claim involving passive activity losses?
• Outcome: Advice given
• Key authorities: IRC §§ 469, 6227, and 6231; Treas. Reg. §§ 301.6231(a)(3)-1(b) and 301.6231(a)(5)-1(d)

Full text (IRS public release)

ID: CCA_2013052115112101 Third Party Communication: None

UILC: 6231.05-00, 469.00-00
Date of Communication: Not Applicable

Number: 201324018
Release Date: 6/14/2013
From:
Sent: Tuesday, May 21, 2013 3:11:21 PM
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Subject: RE: --------- -

The character of partnership income or loss as derived from a trade or business, rental activity, or portfolio income is a partnership item. See Estate of Quick v. Commissioner, 110 T.C. 172 ; Treas. Reg. 301.6231(a)(3)-1(b). Consequently, a change to the originally reported character on the partnership return has to be made as a timely request for administrative adjustment (AAR) under section 6227. Such a claim must be filed on Form 8082 within three years of the filing of the partnership return unless the period for assessing partnership items has been extended to a later date.

The application of the passive loss rules to a partner under section 469 is an affected item with a partnership item component (character of partnership income) and a partner-level component (material participation). Estate of Quick; Treas. Reg. 301.6231(a)(5)-1(d). The partnership level component is subject to the TEFRA procedures and the partner- level component is subject to normal non-TEFRA refund procedures. See Duffie v. U.S., 600 F.3d 362 (5th Cir. 2010).

If a partner files a refund claim for the partner-level component, he will be bound by the partnership-level reporting of the item. Cf. Roberts v. Commissioner, 94 T.C. 853, 860- 62 (1990).