CCA 201326016: Partner status and pass-through self-employment income questions belong in specified proceedings

Plain-English summary

The Chief Counsel's Office explained that whether a listed partner is a partner for federal tax purposes is generally determined under the Supreme Court's Culbertson and Tower tests. The status of a listed partner is a partnership item, so the determination would be subject to the recipient's final partnership administrative adjustment, or FPAA. The memorandum also addressed self-employment income for certain pass-through partners. It said the status of the pass-through partner for that purpose belonged to the identified jurisdiction, and noted that a disregarded entity's owner might be subject to self-employment tax.

Ruling snapshot

• Question: How should partner status and pass-through self-employment income be handled in a partnership proceeding?
• Outcome: Advice given
• Key authorities: IRC § 6231; Culbertson and Tower cases; Blonien v. Commissioner, 118 T.C. 541 (2002); Olsen v. Commissioner, T.C. Memo 2005-174

Full text (IRS public release)

ID: CCA_2013032508574101 Third Party Communication: None

UILC: 6231.02-00
Date of Communication: Not Applicable

Number: 201326016
Release Date: 6/28/2013
From:
Sent: Monday, March 25, 2013 8:57:41 AM
To:
Cc:
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Subject: RE: Issue whether a partner is really a partner

This is a substantive question under ----- jurisdiction. -------- or ----------- in that division may be able to help you. Generally we look to the Supreme Court tests in the Culbertson and Tower cases to determine whether a person is a partner for federal tax purposes; a person is a partner if he joins together with others capital or services in a trade or business for profit.

Jurisdictionally, the status of a listed partner as a partner is a partnership item under Blonien v. Commissioner, 118 T.C. 541 (2002). Thus, this determination would be subject to your FPAA.

We also determine self-employment income for certain pass-thru partners if the ultimate tax paying indirect partner would be subject to self-employment tax from the partnership. See Olsen v. Commissioner, T.C. Memo 2005-174. The status of your pass-thru partner for this purpose is under --------- jurisdiction- but I suspect that if your pass-thru partner is a disregarded entity, its owner would be subject to self-employment tax and we would, consequently, have to determine the pass-thru partner’s share of self- employment income in this proceeding.