Advice addresses BBA elections and partner-level consequences

Plain-English summary

This Chief Counsel email answers several questions about the centralized partnership audit regime, although most of the questions and part of the analysis are redacted. It explains that an election into the regime for an eligible year must include sworn representations about insolvency and sufficient assets to pay an imputed underpayment, and must comply with the regulations and the regime's purpose. If a partnership ceases to exist before adjustments take effect, former or more current partners can be required to take the adjustments into account. If the partnership fails to pay after notice and demand, Section 6232(f) permits assessment against adjustment-year partners or former partners. Reviewed-year partners generally do not owe the partnership-level tax unless adjustments are pushed out, but they remain bound by adjustments to partnership-related items and may need to change basis and capital accounts.

Ruling snapshot

• Question: What requirements and partner-level consequences apply to the redacted BBA election and adjustment issues?
• Outcome: Advice given on election validity, collection, cessation, and partner adjustments.
• Key authorities: IRC §§ 6223, 6232(f), and 6241; Treas. Reg. §§ 301.6223-2, 301.6241-1, 301.6241-3, and 301.9100-22

Full text (IRS public release)

ID: CCA_2020102112134843
UILC: 9100.22-00

Number: 202118019
Release Date: 5/7/2021
From: --------------------
Sent: Wednesday, October 21, 2020 12:13:48 PM
To: ----------------------
Cc: --------------------------------------------------------------
Bcc:
Subject: RE: Associate Office Coordination

Hi -------------

This responds to the BBA questions you had in your request for assistance. You asked
the following:

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RESPONSE:

--------------------------------------------------------------------------------Treas. Reg. § 301.9100-
22(b)(2)(ii)(E) requires any election into BBA for an eligible tax year to contain
representations that the partnership is not insolvent/in bankruptcy or does not
reasonably anticipate being insolvent/in bankruptcy and that it reasonably
anticipates that it will have sufficient assets to pay any IU. The election, which would
include these representations, must be signed under penalties of perjury. Treas.
Reg. § 301.9100-22(b)(2)(ii)(F). ---------------------------------------------------------------------
-------------------------------------------------. An election into BBA is only valid If made in
accordance the regulation. ---------------------------------------------------------------------------
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            --------------------------------There is also the provision that says an election is not valid if
            it frustrates the purpose of BBA. -------------------------------------------------------------------
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                  a. Regulations were promulgated under 301.6241-3 that provide that if the
                       partnership ceases to exist prior to the adjustments taking effect that the
                       former partners of the partnership shall take into account the
                       adjustments. “Cease to exist” is defined as a termination under 708(b)(1) or
                       being CNC. Therefore, there is a way to basically force a push out (to the
                       more current partners) if the partnership ceases to exist prior to the
                       adjustments taking effect.
                  b. Congress enacted section 6232(f) which provides that if the partnership
                       does not pay what it owes under BBA within 10 days of notice and demand
                       that we can assess the partners from the end of the adjustment year (or
                       former partners if ceased to exist) their proportionate share of the amount
                       owed. Accordingly, even if the partnership does not pay, we can assess and
                       collect against the partners.

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RESPONSE:

Unless the partnership elects to push out the adjustments to its reviewed year
partners, the reviewed year partners will not be liable for any tax on the adjustments
to the partnership-related items (PRI) of the partnership. Nonrecourse debt that is
shown, or required to be shown on the partnership’s return is a PRI. Treas. Reg. §
301.6241-1(a)(6)(v)(E). However, the reviewed year partners are bound by the
adjustments. I.R.C. § 6223; Treas. Reg. § 301.6223-2. As a result, the reviewed
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 year partners may have to adjust their basis and capital accounts as a result of the
 adjustments. See Prop. Treas. Reg. § 301.6225-4.

Please let me know if we missed any questions or if you have any questions.

Thanks-

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