Nonmember cannot serve as an LLC partnership's tax matters partner

Plain-English summary

Chief Counsel advised that a tax matters partner designation on a partnership return was invalid because the named entity was not a partnership member. A person signing for an LLC must also have authority under state law to bind it. Before accepting a replacement designation, the IRS should confirm that the proposed corporation is eligible to serve. If no managers have authority under state law or the operating agreement to make the LLC's business decisions, each member is treated as a member-manager under the regulations.

Ruling snapshot

• Question: Who may validly serve and sign as tax matters partner for the LLC partnership?
• Outcome: Advice given. A nonmember designation is invalid, and signing authority depends on state law and the member-manager rules.
• Key authorities: IRC § 6231; Treas. Reg. § 301.6231(a)(7)-2(b)(3)

Full text (IRS public release)

ID: CCA_2017013010015343
UILC: 6231.07-00

Number: 201722025
Release Date: 6/2/2017
From:
Sent: Monday, January 30, 2017 10:01:53 AM
To:
Cc:
Bcc:
Subject: RE: TEFRA Question

Hi -----,

You are absolutely correct that you have an invalid TMP designation on the original
return because the entity named is not a member of the partnership. You are also
correct that only someone who has the ability under state law to bind the LLC can sign
on its behalf. However, before accepting the designation, you should ensure that CORP
is a valid TMP. You state that P has no member managers but it must. If there is no one
designated under state law/operating agreement with the authority (alone or with others)
to make management decisions necessary to conduct the business of P then each
member is a member-manager. Treas. Reg. 301.6231(a)(7)-2(b)(3).

Happy to discuss at your convenience.

Thanks,

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