Rev. Proc. 74-17

Section 1. Purpose.

The purpose of this Revenue Procedure is to announce certain conditions under which the Internal Revenue Service will not issue advance rulings or determination letters concerning classification of organizations which raise factual questions as to whether their principal purpose is the reduction of Federal taxes.

Sec. 2. Background.

.01 In accordance with Rev. Proc. 72-3, 1972-1 C.B. 698, section 5, the Internal Revenue Service has the discretionary authority to issue rulings and determination letters. There are certain areas where, because of the inherently factual nature of the problem, or for other reasons, the Service will not issue, or ordinarily will not issue, rulings or determination letters. A list of these areas is set forth in Rev. Proc. 72-9, 1972-1 C.B. 719. This list is not all inclusive. Section 3.021 of Rev. Proc. 72-9 indicates that the Service will not rule where the transaction has as its principal purpose the reduction of Federal taxes.

.02 When requested by taxpayers or their authorized representatives, the Individual Income Tax Branch of the Income Tax Division, as part of its functions, issues advance ruling letters on the classification of organizations as partnerships under section 7701 of the Internal Revenue Code of 1954 and section 301.7701-3 of the Procedure and Administration Regulations.

.03 The Individual Income Tax Branch has developed certain operating rules for determining whether a ruling letter will be issued concerning organizations formed as limited partnerships and the conclusions that will be expressed in such ruling letters. Among such operating rules is Rev. Proc. 72-13, 1972-1 C.B. 735, relating to conditions under which the Service will issue a ruling letter on the classification of an organization as a limited partnership where a corporation is the sole general partner.

.04 The operating rules set forth in this Revenue Procedure are being published to make clear the circumstances in which advance rulings will not ordinarily be issued and thus to provide assistance to taxpayers and their representatives in preparing ruling requests, and to assist the Service in issuing advance ruling letters as promptly as practicable. These operating rules do not define, as a matter of law, whether the principal purpose of the organization is the reduction of Federal taxes, nor whether participants in an organization are partners or whether such an organization is a partnership, nor do they define any other terms used in the Internal Revenue Code, Income Tax Regulations, Procedure and Administration Regulations, or Revenue Rulings.

.05 A requested ruling that an organization which is to be formed and operated as a limited partnership is a partnership under section 7701 of the Code will ordinarily be issued if the operating rules set forth in section 3 of this Revenue Procedure are complied with and if all other pertinent provisions of the Internal Revenue Code and regulations thereunder, Revenue Rulings and Revenue Procedures are satisfied.

.06 If the operating rules of section 3 of this Revenue Procedure are not complied with, the Service will ordinarily decline to issue the requested ruling or determination letter.

Sec. 3. Operating Rules for This Revenue Procedure.

.01 The interests of all of the general partners, taken together, in each material item of partnership income, gain, loss, deduction or credit is equal to at least one percent of each such item at all times during the existence of the partnership. In determining the general partners' interests in such items, limited partnership interests owned by the general partners shall not be taken into account.

.02 The aggregate deductions to be claimed by the partners as their distributive shares of partnership losses for the first two years of operation of the limited partnership will not exceed the amount of equity capital invested in the limited partnership.

.03 A creditor who makes a nonrecourse loan to the limited partnership must not have or acquire, at any time as a result of making the loan, any direct or indirect interest in the profits, capital, or property of the limited partnership other than as a secured creditor.

.04 The rules set forth above must be contained in relevant documents furnished with the request for ruling or, in the absence thereof, by factual representations that such rules will be contained in all relevant documents when they are finalized.

Sec. 4. Other Instructions.

The general procedures of Rev. Proc. 72-3, relating to the issuance of rulings and determination letters are applicable to requests relating to classification of organizations formed as limited partnerships, as are the special procedures of Rev. Proc. 72-13, relating to conditions under which the Service will issue a ruling concerning classification of organizations formed as limited partnerships where a corporation is the sole general partner. Also applicable is Rev. Proc. 72-9, which indicates the areas in which the Service will not issue, or ordinarily will not issue, rulings or determination letters. The rules stated above are to be applied only in determining whether ruling and determination letters will be issued and are not intended as substantive rules for the determination of partnership status and are not to be applied as criteria for the audit of taxpayers' returns.

Sec. 5. Effective Date.

The provisions of this Revenue Procedure are effective immediately.

Sec. 6. Inquiries.

Inquiries in regard to this Revenue Procedure should refer to its number and should be addressed to the Assistant Commissioner (Technical), Attention: T:I:I, Internal Revenue Service, Washington, D.C. 20224.

¹ Also released as Technical Information Release No. 1290, dated May 3, 1974.