Parent bankruptcy does not convert a subsidiary's partnership items

Plain-English summary

Chief Counsel advised that a parent corporation's bankruptcy does not convert the partnership items of a non-bankrupt subsidiary that is itself a partner. The IRS could assess the subsidiary after the TEFRA partnership proceeding, using the consolidated return to calculate the subsidiary's several liability. Alternatively, it could issue a converted-item notice of deficiency to the parent and assess the parent after that case. The liability could be collected only once, and the collection target could depend on which corporation still had assets.

Ruling snapshot

• Question: Does a parent corporation's bankruptcy convert the partnership items of its non-bankrupt subsidiary?
• Outcome: Advice given, the subsidiary's items are not converted
• Key authorities: IRC § 6231; TEFRA partnership procedures

Full text (IRS public release)

ID: CCA-0722819-14 [Third Party Communication:

UILC: 6231.13-00
Date of Communication: Month DD, YYYY]

Number: 201510044
Release Date: 3/6/2015
From:
Sent: Tuesday, July 22, 2014 8:19 AM
To:
Cc:
Bcc:
Subject: RE: Bankruptcy of Parent

A parent’s bankruptcy does not convert the partnership items of a non-bankrupt subsidiary corporation for the partnership in which the subsidiary is a partner. In such case, we would have to assess only the subsidiary based on the outcome of the TEFRA partnership proceeding using the consolidated return to compute the several liability to be assessed against the subsidiary.

Alternatively, we can issue a converted item notice of deficiency to the parent and make the assessment against the parent based on the outcome of that deficiency proceeding.

We would collect the several liability only once of course, but who we collect against may depend on who still has assets to satisfy the collection.