Subchapter D—Treatment of Electing Large Partnerships
PART I—TREATMENT OF PARTNERSHIP ITEMS AND ADJUSTMENTS
Prior Provisions
A prior subchapter D, Tax Treatment of Subchapter S Items, consisted of sections 6241 to 6245, prior to repeal by
§6240. Application of subchapter
(a) General rule
This subchapter shall only apply to electing large partnerships and partners in such partnerships.
(b) Coordination with other partnership audit procedures
(1) In general
Subchapter C of this chapter shall not apply to any electing large partnership other than in its capacity as a partner in another partnership which is not an electing large partnership.
(2) Treatment where partner in other partnership
If an electing large partnership is a partner in another partnership which is not an electing large partnership—
(A) subchapter C of this chapter shall apply to items of such electing large partnership which are partnership items with respect to such other partnership, but
(B) any adjustment under such subchapter C shall be taken into account in the manner provided by section 6242.
(Added
Effective Date
Subchapter applicable to partnership taxable years beginning after Dec. 31, 1997, see section 1226 of
§6241. Partner's return must be consistent with partnership return
(a) General rule
A partner of any electing large partnership shall, on the partner's return, treat each partnership item attributable to such partnership in a manner which is consistent with the treatment of such partnership item on the partnership return.
(b) Underpayment due to inconsistent treatment assessed as math error
Any underpayment of tax by a partner by reason of failing to comply with the requirements of subsection (a) shall be assessed and collected in the same manner as if such underpayment were on account of a mathematical or clerical error appearing on the partner's return. Paragraph (2) of section 6213(b) shall not apply to any assessment of an underpayment referred to in the preceding sentence.
(c) Adjustments not to affect prior year of partners
(1) In general
Except as provided in paragraph (2), subsections (a) and (b) shall apply without regard to any adjustment to the partnership item under part II.
(2) Certain changes in distributive share taken into account by partner
(A) In general
To the extent that any adjustment under part II involves a change under section 704 in a partner's distributive share of the amount of any partnership item shown on the partnership return, such adjustment shall be taken into account in applying this title to such partner for the partner's taxable year for which such item was required to be taken into account.
(B) Coordination with deficiency procedures
(i) In general
Subchapter B shall not apply to the assessment or collection of any underpayment of tax attributable to an adjustment referred to in subparagraph (A).
(ii) Adjustment not precluded
Notwithstanding any other law or rule of law, nothing in subchapter B (or in any proceeding under subchapter B) shall preclude the assessment or collection of any underpayment of tax (or the allowance of any credit or refund of any overpayment of tax) attributable to an adjustment referred to in subparagraph (A) and such assessment or collection or allowance (or any notice thereof) shall not preclude any notice, proceeding, or determination under subchapter B.
(C) Period of limitations
The period for—
(i) assessing any underpayment of tax, or
(ii) filing a claim for credit or refund of any overpayment of tax,
attributable to an adjustment referred to in subparagraph (A) shall not expire before the close of the period prescribed by section 6248 for making adjustments with respect to the partnership taxable year involved.
(D) Tiered structures
If the partner referred to in subparagraph (A) is another partnership or an S corporation, the rules of this paragraph shall also apply to persons holding interests in such partnership or S corporation (as the case may be); except that, if such partner is an electing large partnership, the adjustment referred to in subparagraph (A) shall be taken into account in the manner provided by section 6242.
(d) Addition to tax for failure to comply with section
For addition to tax in case of partner's disregard of requirements of this section, see part II of subchapter A of
(Added
Prior Provisions
A prior section 6241, added
§6242. Procedures for taking partnership adjustments into account
(a) Adjustments flow through to partners for year in which adjustment takes effect
(1) In general
If any partnership adjustment with respect to any partnership item takes effect (within the meaning of subsection (d)(2)) during any partnership taxable year and if an election under paragraph (2) does not apply to such adjustment, such adjustment shall be taken into account in determining the amount of such item for the partnership taxable year in which such adjustment takes effect. In applying this title to any person who is (directly or indirectly) a partner in such partnership during such partnership taxable year, such adjustment shall be treated as an item actually arising during such taxable year.
(2) Partnership liable in certain cases
If—
(A) a partnership elects under this paragraph to not take an adjustment into account under paragraph (1),
(B) a partnership does not make such an election but in filing its return for any partnership taxable year fails to take fully into account any partnership adjustment as required under paragraph (1), or
(C) any partnership adjustment involves a reduction in a credit which exceeds the amount of such credit determined for the partnership taxable year in which the adjustment takes effect,
the partnership shall pay to the Secretary an amount determined by applying the rules of subsection (b)(4) to the adjustments not so taken into account and any excess referred to in subparagraph (C).
(3) Offsetting adjustments taken into account
If a partnership adjustment requires another adjustment in a taxable year after the adjusted year and before the partnership taxable year in which such partnership adjustment takes effect, such other adjustment shall be taken into account under this subsection for the partnership taxable year in which such partnership adjustment takes effect.
(4) Coordination with part II
Amounts taken into account under this subsection for any partnership taxable year shall continue to be treated as adjustments for the adjusted year for purposes of determining whether such amounts may be readjusted under part II.
(b) Partnership liable for interest and penalties
(1) In general
If a partnership adjustment takes effect during any partnership taxable year and such adjustment results in an imputed underpayment for the adjusted year, the partnership—
(A) shall pay to the Secretary interest computed under paragraph (2), and
(B) shall be liable for any penalty, addition to tax, or additional amount as provided in paragraph (3).
(2) Determination of amount of interest
The interest computed under this paragraph with respect to any partnership adjustment is the interest which would be determined under
(A) on the imputed underpayment determined under paragraph (4) with respect to such adjustment,
(B) for the period beginning on the day after the return due date for the adjusted year and ending on the return due date for the partnership taxable year in which such adjustment takes effect (or, if earlier, in the case of any adjustment to which subsection (a)(2) applies, the date on which the payment under subsection (a)(2) is made).
Proper adjustments in the amount determined under the preceding sentence shall be made for adjustments required for partnership taxable years after the adjusted year and before the year in which the partnership adjustment takes effect by reason of such partnership adjustment.
(3) Penalties
A partnership shall be liable for any penalty, addition to tax, or additional amount for which it would have been liable if such partnership had been an individual subject to tax under
(4) Imputed underpayment
For purposes of this subsection, the imputed underpayment determined under this paragraph with respect to any partnership adjustment is the underpayment (if any) which would result—
(A) by netting all adjustments to items of income, gain, loss, or deduction and by treating any net increase in income as an underpayment equal to the amount of such net increase multiplied by the highest rate of tax in effect under section 1 or 11 for the adjusted year, and
(B) by taking adjustments to credits into account as increases or decreases (whichever is appropriate) in the amount of tax.
For purposes of the preceding sentence, any net decrease in a loss shall be treated as an increase in income and a similar rule shall apply to a net increase in a loss.
(c) Administrative provisions
(1) In general
Any payment required by subsection (a)(2) or (b)(1)(A)—
(A) shall be assessed and collected in the same manner as if it were a tax imposed by subtitle C, and
(B) shall be paid on or before the return due date for the partnership taxable year in which the partnership adjustment takes effect.
(2) Interest
For purposes of determining interest, any payment required by subsection (a)(2) or (b)(1)(A) shall be treated as an underpayment of tax.
(3) Penalties
(A) In general
In the case of any failure by any partnership to pay on the date prescribed therefor any amount required by subsection (a)(2) or (b)(1)(A), there is hereby imposed on such partnership a penalty of 10 percent of the underpayment. For purposes of the preceding sentence, the term "underpayment" means the excess of any payment required under this section over the amount (if any) paid on or before the date prescribed therefor.
(B) Accuracy-related and fraud penalties made applicable
For purposes of part II of subchapter A of
(d) Definitions and special rules
For purposes of this section—
(1) Partnership adjustment
The term "partnership adjustment" means any adjustment in the amount of any partnership item of an electing large partnership.
(2) When adjustment takes effect
A partnership adjustment takes effect—
(A) in the case of an adjustment pursuant to the decision of a court in a proceeding brought under part II, when such decision becomes final,
(B) in the case of an adjustment pursuant to any administrative adjustment request under section 6251, when such adjustment is allowed by the Secretary, or
(C) in any other case, when such adjustment is made.
(3) Adjusted year
The term "adjusted year" means the partnership taxable year to which the item being adjusted relates.
(4) Return due date
The term "return due date" means, with respect to any taxable year, the date prescribed for filing the partnership return for such taxable year (determined without regard to extensions).
(5) Adjustments involving changes in character
Under regulations, appropriate adjustments in the application of this section shall be made for purposes of taking into account partnership adjustments which involve a change in the character of any item of income, gain, loss, or deduction.
(e) Payments nondeductible
No deduction shall be allowed under subtitle A for any payment required to be made by an electing large partnership under this section.
(Added
Prior Provisions
A prior section 6242, added
A prior section 6243, added
A prior section 6244, added
PART II—PARTNERSHIP LEVEL ADJUSTMENTS
Subpart A—Adjustments by Secretary
§6245. Secretarial authority
(a) General rule
The Secretary is authorized and directed to make adjustments at the partnership level in any partnership item to the extent necessary to have such item be treated in the manner required.
(b) Notice of partnership adjustment
(1) In general
If the Secretary determines that a partnership adjustment is required, the Secretary is authorized to send notice of such adjustment to the partnership by certified mail or registered mail. Such notice shall be sufficient if mailed to the partnership at its last known address even if the partnership has terminated its existence.
(2) Further notices restricted
If the Secretary mails a notice of a partnership adjustment to any partnership for any partnership taxable year and the partnership files a petition under section 6247 with respect to such notice, in the absence of a showing of fraud, malfeasance, or misrepresentation of a material fact, the Secretary shall not mail another such notice to such partnership with respect to such taxable year.
(3) Authority to rescind notice with partnership consent
The Secretary may, with the consent of the partnership, rescind any notice of a partnership adjustment mailed to such partnership. Any notice so rescinded shall not be treated as a notice of a partnership adjustment, for purposes of this section, section 6246, and section 6247, and the taxpayer shall have no right to bring a proceeding under section 6247 with respect to such notice. Nothing in this subsection shall affect any suspension of the running of any period of limitations during any period during which the rescinded notice was outstanding.
(Added
Prior Provisions
A prior section 6245, added
§6246. Restrictions on partnership adjustments
(a) General rule
Except as otherwise provided in this chapter, no adjustment to any partnership item may be made (and no levy or proceeding in any court for the collection of any amount resulting from such adjustment may be made, begun or prosecuted) before—
(1) the close of the 90th day after the day on which a notice of a partnership adjustment was mailed to the partnership, and
(2) if a petition is filed under section 6247 with respect to such notice, the decision of the court has become final.
(b) Premature action may be enjoined
Notwithstanding section 7421(a), any action which violates subsection (a) may be enjoined in the proper court, including the Tax Court. The Tax Court shall have no jurisdiction to enjoin any action under this subsection unless a timely petition has been filed under section 6247 and then only in respect of the adjustments that are the subject of such petition.
(c) Exceptions to restrictions on adjustments
(1) Adjustments arising out of math or clerical errors
(A) In general
If the partnership is notified that, on account of a mathematical or clerical error appearing on the partnership return, an adjustment to a partnership item is required, rules similar to the rules of paragraphs (1) and (2) of section 6213(b) shall apply to such adjustment.
(B) Special rule
If an electing large partnership is a partner in another electing large partnership, any adjustment on account of such partnership's failure to comply with the requirements of section 6241(a) with respect to its interest in such other partnership shall be treated as an adjustment referred to in subparagraph (A), except that paragraph (2) of section 6213(b) shall not apply to such adjustment.
(2) Partnership may waive restrictions
The partnership shall at any time (whether or not a notice of partnership adjustment has been issued) have the right, by a signed notice in writing filed with the Secretary, to waive the restrictions provided in subsection (a) on the making of any partnership adjustment.
(d) Limit where no proceeding begun
If no proceeding under section 6247 is begun with respect to any notice of a partnership adjustment during the 90-day period described in subsection (a), the amount for which the partnership is liable under section 6242 (and any increase in any partner's liability for tax under
(Added
§6247. Judicial review of partnership adjustment
(a) General rule
Within 90 days after the date on which a notice of a partnership adjustment is mailed to the partnership with respect to any partnership taxable year, the partnership may file a petition for a readjustment of the partnership items for such taxable year with—
(1) the Tax Court,
(2) the district court of the United States for the district in which the partnership's principal place of business is located, or
(3) the Claims Court.
(b) Jurisdictional requirement for bringing action in district court or Claims Court
(1) In general
A readjustment petition under this section may be filed in a district court of the United States or the Claims Court only if the partnership filing the petition deposits with the Secretary, on or before the date the petition is filed, the amount for which the partnership would be liable under section 6242(b) (as of the date of the filing of the petition) if the partnership items were adjusted as provided by the notice of partnership adjustment. The court may by order provide that the jurisdictional requirements of this paragraph are satisfied where there has been a good faith attempt to satisfy such requirement and any shortfall of the amount required to be deposited is timely corrected.
(2) Interest payable
Any amount deposited under paragraph (1), while deposited, shall not be treated as a payment of tax for purposes of this title (other than
(c) Scope of judicial review
A court with which a petition is filed in accordance with this section shall have jurisdiction to determine all partnership items of the partnership for the partnership taxable year to which the notice of partnership adjustment relates and the proper allocation of such items among the partners (and the applicability of any penalty, addition to tax, or additional amount for which the partnership may be liable under section 6242(b)).
(d) Determination of court reviewable
Any determination by a court under this section shall have the force and effect of a decision of the Tax Court or a final judgment or decree of the district court or the Claims Court, as the case may be, and shall be reviewable as such. The date of any such determination shall be treated as being the date of the court's order entering the decision.
(e) Effect of decision dismissing action
If an action brought under this section is dismissed other than by reason of a rescission under section 6245(b)(3), the decision of the court dismissing the action shall be considered as its decision that the notice of partnership adjustment is correct, and an appropriate order shall be entered in the records of the court.
(Added
§6248. Period of limitations for making adjustments
(a) General rule
Except as otherwise provided in this section, no adjustment under this subpart to any partnership item for any partnership taxable year may be made after the date which is 3 years after the later of—
(1) the date on which the partnership return for such taxable year was filed, or
(2) the last day for filing such return for such year (determined without regard to extensions).
(b) Extension by agreement
The period described in subsection (a) (including an extension period under this subsection) may be extended by an agreement entered into by the Secretary and the partnership before the expiration of such period.
(c) Special rule in case of fraud, etc.
(1) False return
In the case of a false or fraudulent partnership return with intent to evade tax, the adjustment may be made at any time.
(2) Substantial omission of income
If any partnership omits from gross income an amount properly includible therein which is in excess of 25 percent of the amount of gross income stated in its return, subsection (a) shall be applied by substituting "6 years" for "3 years".
(3) No return
In the case of a failure by a partnership to file a return for any taxable year, the adjustment may be made at any time.
(4) Return filed by Secretary
For purposes of this section, a return executed by the Secretary under subsection (b) of section 6020 on behalf of the partnership shall not be treated as a return of the partnership.
(d) Suspension when Secretary mails notice of adjustment
If notice of a partnership adjustment with respect to any taxable year is mailed to the partnership, the running of the period specified in subsection (a) (as modified by the other provisions of this section) shall be suspended—
(1) for the period during which an action may be brought under section 6247 (and, if a petition is filed under section 6247 with respect to such notice, until the decision of the court becomes final), and
(2) for 1 year thereafter.
(Added
Subpart B—Claims for Adjustments by Partnership
§6251. Administrative adjustment requests
(a) General rule
A partnership may file a request for an administrative adjustment of partnership items for any partnership taxable year at any time which is—
(1) within 3 years after the later of—
(A) the date on which the partnership return for such year is filed, or
(B) the last day for filing the partnership return for such year (determined without regard to extensions), and
(2) before the mailing to the partnership of a notice of a partnership adjustment with respect to such taxable year.
(b) Secretarial action
If a partnership files an administrative adjustment request under subsection (a), the Secretary may allow any part of the requested adjustments.
(c) Special rule in case of extension under section 6248
If the period described in section 6248(a) is extended pursuant to an agreement under section 6248(b), the period prescribed by subsection (a)(1) shall not expire before the date 6 months after the expiration of the extension under section 6248(b).
(Added
§6252. Judicial review where administrative adjustment request is not allowed in full
(a) In general
If any part of an administrative adjustment request filed under section 6251 is not allowed by the Secretary, the partnership may file a petition for an adjustment with respect to the partnership items to which such part of the request relates with—
(1) the Tax Court,
(2) the district court of the United States for the district in which the principal place of business of the partnership is located, or
(3) the Claims Court.
(b) Period for filing petition
A petition may be filed under subsection (a) with respect to partnership items for a partnership taxable year only—
(1) after the expiration of 6 months from the date of filing of the request under section 6251, and
(2) before the date which is 2 years after the date of such request.
The 2-year period set forth in paragraph (2) shall be extended for such period as may be agreed upon in writing by the partnership and the Secretary.
(c) Coordination with subpart A
(1) Notice of partnership adjustment before filing of petition
No petition may be filed under this section after the Secretary mails to the partnership a notice of a partnership adjustment for the partnership taxable year to which the request under section 6251 relates.
(2) Notice of partnership adjustment after filing but before hearing of petition
If the Secretary mails to the partnership a notice of a partnership adjustment for the partnership taxable year to which the request under section 6251 relates after the filing of a petition under this subsection but before the hearing of such petition, such petition shall be treated as an action brought under section 6247 with respect to such notice, except that subsection (b) of section 6247 shall not apply.
(3) Notice must be before expiration of statute of limitations
A notice of a partnership adjustment for the partnership taxable year shall be taken into account under paragraphs (1) and (2) only if such notice is mailed before the expiration of the period prescribed by section 6248 for making adjustments to partnership items for such taxable year.
(d) Scope of judicial review
Except in the case described in paragraph (2) of subsection (c), a court with which a petition is filed in accordance with this section shall have jurisdiction to determine only those partnership items to which the part of the request under section 6251 not allowed by the Secretary relates and those items with respect to which the Secretary asserts adjustments as offsets to the adjustments requested by the partnership.
(e) Determination of court reviewable
Any determination by a court under this section shall have the force and effect of a decision of the Tax Court or a final judgment or decree of the district court or the Claims Court, as the case may be, and shall be reviewable as such. The date of any such determination shall be treated as being the date of the court's order entering the decision.
(Added
PART III—DEFINITIONS AND SPECIAL RULES
§6255. Definitions and special rules
(a) Definitions
For purposes of this subchapter—
(1) Electing large partnership
The term "electing large partnership" has the meaning given to such term by section 775.
(2) Partnership item
The term "partnership item" has the meaning given to such term by section 6231(a)(3).
(b) Partners bound by actions of partnership, etc.
(1) Designation of partner
Each electing large partnership shall designate (in the manner prescribed by the Secretary) a partner (or other person) who shall have the sole authority to act on behalf of such partnership under this subchapter. In any case in which such a designation is not in effect, the Secretary may select any partner as the partner with such authority.
(2) Binding effect
An electing large partnership and all partners of such partnership shall be bound—
(A) by actions taken under this subchapter by the partnership, and
(B) by any decision in a proceeding brought under this subchapter.
(c) Partnerships having principal place of business outside the United States
For purposes of sections 6247 and 6252, a principal place of business located outside the United States shall be treated as located in the District of Columbia.
(d) Treatment where partnership ceases to exist
If a partnership ceases to exist before a partnership adjustment under this subchapter takes effect, such adjustment shall be taken into account by the former partners of such partnership under regulations prescribed by the Secretary.
(e) Date decision becomes final
For purposes of this subchapter, the principles of section 7481(a) shall be applied in determining the date on which a decision of a district court or the Claims Court becomes final.
(f) Partnerships in cases under title 11 of the United States Code
(1) Suspension of period of limitations on making adjustment, assessment, or collection
The running of any period of limitations provided in this subchapter on making a partnership adjustment (or provided by section 6501 or 6502 on the assessment or collection of any amount required to be paid under section 6242) shall, in a case under
(A) for adjustment or assessment, 60 days thereafter, and
(B) for collection, 6 months thereafter.
A rule similar to the rule of section 6213(f)(2) shall apply for purposes of section 6246.
(2) Suspension of period of limitation for filing for judicial review
The running of the period specified in section 6247(a) or 6252(b) shall, in a case under
(g) Regulations
The Secretary shall prescribe such regulations as may be necessary to carry out the provisions of this subchapter, including regulations—
(1) to prevent abuse through manipulation of the provisions of this subchapter, and
(2) providing that this subchapter shall not apply to any case described in section 6231(c)(1) (or the regulations prescribed thereunder) where the application of this subchapter to such a case would interfere with the effective and efficient enforcement of this title.
In any case to which this subchapter does not apply by reason of paragraph (2), rules similar to the rules of sections 6229(f) and 6255(f) shall apply.
(Added