Only the LLC member-manager qualified as tax matters partner

Plain-English summary

Chief Counsel analyzed who could serve as tax matters partner for a manager-managed limited liability company subject to TEFRA. The LLC agreement and state law vested management authority in one person who was also an LLC member, making that person the sole member-manager and the only person qualified to act as tax matters partner. Two other persons were therefore ineligible for that role. A partnership-level limitations extension signed by an ineligible person would not bind the other partners without authority from the tax matters partner or written partnership authorization. An individual partner's separate extensions nevertheless kept that partner's assessment period open for tax attributable to partnership-item adjustments.

Ruling snapshot

• Question: Who qualified as the LLC's tax matters partner, and which limitations extensions could bind the partnership or an individual partner?
• Outcome: Advice given
• Key authorities: IRC §§ 6229(b), 6231(a)(7); Treas. Reg. §§ 301.6231(a)(7)-1, 301.6231(a)(7)-2

Full text (IRS public release)

ID: CCA_2015071415242607 [Third Party Communication:

UILC: 6231.07-00 Date of Communication: Month DD, YYYY]

Number: 201534009
Release Date: 8/21/2015
From:
Sent: Tuesday, July 14, 2015 3:24:26 PM
To:
Cc:
Bcc:
Subject: RE: ---------------------------------------------------; POSTF-116850-15

-------,

This email responds to your request for advice dated 6/9/2015. In response to your
questions:

  1. ----- is not eligible to be the TMP of ------- because ----- is not a member-manager as defined in
     Treas. Reg. § 301.6231(a)(7)-2.
  2. ------ is not eligible to be ---------- TMP because ------ is not a member-manager as defined in
     Treas. Reg. § 301.6231(a)(7)-2.
  3. A Form 872-P signed by ------ would not extend the period to assess the other partners of ---------
     unless ------ had authority to the sign for the TMP or was given authority to sign a statute
     extension in a statement signed by the member-manager of -------. ------ does not appear to
     have been granted that authority.
  4. The IRS may assess ------ for the tax attributable to the adjustment of the partnership items of ---
     ------- because the period to assess ------ is open due to individual statute of limitations
     extensions signed by ------.

Under Treas. Reg. § 301.6231(a)(7)-1(b)(1)(i), only a person who was a general partner
during some of the taxable year may be the TMP of a TEFRA partnership. For LLCs,
only a member-manager of an LLC is treated as a general partner. Treas. Reg.
301.6231(a)(7)-2. A member-manager is someone who, alone or together with others,
has the authority to make management decisions necessary to conduct the business of
the LLC. Treas. Reg. § 301.6231(a)(7)-2(b)(3). If there are no elected or designated
member-managers, each member is treated as a member-manager.

According to the LLC agreement, -------- is a CA LLC. Under CA law, if the articles of
organization of an LLC indicate that the LLC is a manager-managed LLC, then no
member acting solely in the capacity as a member is an agent of the LLC for purposes
of its business or affairs and may not bind the LLC. Cal. Corp. Code § 17703.01. If the
articles of organization do not indicate that the LLC is a manager-managed LLC, then
every member is an agent of the LLC. Id. Therefore, under CA law all members are
managers, but only if the LLC agreement does not provide otherwise.
2

In its articles of organization, -------- checked the box to indicate that it is to be managed
by one manager. On --------- of the LLC agreement, management of -------- is vested in -
--------------------. Therefore, -------- is a manager-managed LLC under CA law and only
managers have, under CA law, the authority to make management decisions necessary
to conduct the business of the LLC. Under Treas. Reg. § 301.6231(a)(7)-2(b)(3) in
order for a person to be a “member-manager” and, thus, qualified to be the TMP of an
LLC, the person must be a “member of an LLC who, alone or together with others, is
vested with the continuing exclusive authority to make the management decisions
necessary to conduct the business for which the organization was formed.” In this case,
-------- has vested management of itself in --------------, who is also a member of -----------
--------. As -------------- is a member of --------, and the only manager, he is the only
“member-manager” under Treas. Reg. § 301.6231(a)(7)-2 and, thus, is the only person
qualified to be the TMP of --------.

Because -------------- is the only person qualified to be the TMP of --------, ----- and ------
are not eligible to be the TMP of --------. Thus, a statute extension signed by ---------------
would not extend the period to assess other partners of -------- unless ------ was acting
for the TMP or a person authorized by the partnership in writing to extend the period for
the other partners. I.R.C. § 6229(b)(1)(B). We have no indication that this is the case.
However, you have indicated that ------ has signed Forms 872 to extend his personal
period for assessment. Therefore, ------’s period of limitations for assessment is open
and the IRS may assess tax attributable to any adjustments to --------’s partnership
items. See I.R.C. § 6229(b)(1)(A), (3).

Please let me know if you have any questions, or if we can be of further assistance.

Thanks,

---------------

-------------