8.19.12. Final Partnership Administrative Adjustment

(1) Appeals employees must follow the work request procedures to request ATT assistance. Use of the ATT is mandatory for agreement package, closing package, and FPAA preparation. Follow the work request procedures in IRM 8.19.1.1.1, Appeals TEFRA Team (ATT). Also see detailed procedures for using the ATT on their ATT SharePoint site. A link to the site is found on the Appeals TEFRA website.

(1) These procedures are written for partnership tax years ending after August 5, 1997. If you have a partnership whose tax year ends before August 6, 1997, please contact the TEFRA Technical Specialists or the TEFRA AO assigned to your case for guidance.

(1) For joint returns, a duplicate FPAA must be prepared and mailed to each spouse if both are unagreed.

(2) Unique issues arise in the context of the TEFRA provisions when applied to persons who file a joint return. Generally, the signatures of both spouses, or an authorized representative for both, are needed on a settlement agreement. If only one spouse signs the settlement agreement (agreement form), the other spouse may or may not remain a party to the TEFRA proceeding. Either an FPAA or a notice of deficiency will have to be mailed to the spouse that did not sign the agreement. See Treas. Reg. 301.6231(a)(2)-1(a) and Treas. Reg. 301.6231(a)(12)-1(a).

(3) If either spouse was also the TMP, then an FPAA must also be mailed to that spouse in his/her capacity as the TMP whether or not that spouse signed an agreement form.

(1) For consolidated return tax years beginning before June 28, 2002, Treas. Reg. 1.1502-77A(a) provides that the common parent corporation in a consolidated group is the sole agent for the group. Thus, the FPAA should be mailed to the common parent corporation.

1. If the parent corporation or one of its subsidiaries was also the TMP, then an FPAA must also be mailed to that corporation in its capacity as the TMP whether or not an agreement form was signed.

2. See IRM 8.19.11.4.2 for guidelines for the signature block of the Form 870-PT that is mailed with the FPAA, depending on whether the parent corporation or the subsidiary corporation was the partner and if one was also the TMP.

(2) For consolidated return tax years beginning on or after June 28, 2002, Treas. Reg. 1.1502-77(a)(6)(iii) provides that the Service will deal directly with any member in its capacity as a partner of a TEFRA partnership. However, Treas. Reg. 1.1502-77(a)(2)(ix) provides that an FPAA with respect to any partnership in which a member of the group is a partner may be mailed to the common parent. Thus, the FPAA should be mailed to the common parent corporation.

1. If the parent corporation or one of its subsidiaries was also the TMP, then an FPAA must also be mailed to that corporation in its capacity as the TMP whether or not an agreement form was signed.

2. See IRM 8.19.11.4.2 for guidelines for the signature block of the Form 870-PT that is mailed with the FPAA, depending on whether the parent corporation or the subsidiary corporation was the partner and if one was also the TMP.

(1) The Letter 1830 for the generic TMP:

1. Should be addressed generically to: "The Tax Matters Partner" of the TEFRA partnership.

   Example: If the name of the partnership was ABC Partnership, the Letter 1830 would be addressed to "The Tax Matters Partner, ABC Partnership"

2. The Letter 1830 will include the address as shown on the partnership return. If the address of the partnership was updated in accordance with Treas. Reg. 301.6223(c)-1, a second Letter 1830 should be prepared for that address. A Letter 1830 should also be prepared for any other address if it is known that the address of the partnership has changed.

3. On page one of the Letter 1830, the taxpayer identification number (TIN) field should either be left blank or include the TIN of the partnership.

(2) The Letter 1830 for the named TMP:

1. Should be addressed to the TMP by name.

   Example: If the name of the TMP for the ABC Partnership was John Smith, the Letter 1830 would be addressed to "John Smith, Tax Matters Partner, ABC Partnership"

2. The Letter 1830 will include the address shown on the Schedule K-1. If the last known address of the TMP has changed based on researching Master File, a second Letter 1830 should be prepared for that address. A Letter 1830 should also be prepared for any other address if it is known that the address of the named TMP has changed.

3. On page one of the Letter 1830, the TIN field should be the TIN of the TMP, the TIN of the partnership, or be left blank.

(3) Only one tax year should be included on the Letter 1830.

(1) The Schedule of Adjustments page is the part of the agreement form that shows the partnership adjustments.

(2) For partnership tax years ending after August 5, 1997, use Form 870–PT. Only one tax year should be included on each Schedule of Adjustments page unless the partners have not changed.

(3) The allocation of all partners must be shown on the Schedule of Adjustments page if the correct allocation of partnership items or partners' ownership is an issue. See IRM 8.19.10.4.8.4. See also IRM Exhibit 8.19.11-3 (allocation of partnership items) and IRM Exhibit 8.19.11-4 (allocation of partners' ownership).

(4) The Schedule of Adjustments page will include all adjustments even if some issues were settled by partial agreements for some or all of the partners. For additional information on partial agreements see IRM 8.19.11.11.

(5) For partnership tax years ending after August 5, 1997, as penalties are determined at the partnership level, any penalties should be included on the Schedule of Adjustments page of Form 870-PT. Include a comment in the remarks section of the Schedule of Adjustments page that partner level defenses can be raised in a refund proceeding after the penalties have been assessed and paid.

(6) See Exhibit 8.19.12-1 for a sample Schedule of Adjustments page for a Form 870-PT.

(7) For a no-change case, the Schedule of Adjustments page will show no adjustments. See Exhibit 8.19.12-2 for a sample Schedule of Adjustments page of a Form 870-PT for a no-change FPAA. See IRM 8.19.10.4.9 and IRM 8.19.11.13 for more information on no-change cases.

(1) Unless otherwise instructed by the AO, the TCS will use the sample paragraphs located on the Appeals TCS website for Notices of Deficiency as guides for the explanatory paragraphs in the FPAA. If the TCS prepares the paragraphs, then the AO should give the ACM to the TCS to assist them in choosing or writing an appropriate paragraph.

(2) For partnership tax years ending after August 5, 1997, as penalties are determined at the partnership level, any penalties should be included in the Explanation of Adjustments.

(3) See Exhibit 8.19.12-3 for a sample Explanation of Adjustments for a partnership tax year ending after August 5, 1997.

(4) When partial agreements were obtained by the AO, the TCS will include appropriate language explaining this in the FPAA. See Exhibit 8.19.12-4 for an example where all partners agreed to a partial settlement and Exhibit 8.19.12-5 for an example when only some partners agreed to a partial settlement. For additional information on partial agreements see IRM 8.19.11.11.

(5) An Explanation of Adjustments is not needed for a no-change case.

(1) The Form 4605–A is not part of the FPAA. However, it is prepared to show both the adjustments and corrected income/loss of the partnership.

(2) The TCS should work from the return and take into account any Form 8082 (AAR) and Form 1065X that were processed, if applicable. The only issues that should be shown on the Form 4605–A are the ones that result in an adjustment to the amount shown on the return.

(3) The TCS will prepare a new Form 4605-A only if the one in the administrative file is incorrect or has been modified by Appeals.

(4) The following information should be shown at the top or in the remarks section of Form 4605-A:

1. "FPAA"

2. "Information Only—Do Not Mail to Taxpayer"

(5) Include an IRC 6404(g) key case comment on the Form 4605-A in the remarks section. See IRM 8.19.1.7 and IRM 8.17.6.9. For example, if the earliest notice that was issued was a 60-day letter that was dated March 15, 2006, enter "60-day letter" and "March 15, 2006." There may be more than one notice for the same return and more than one IRC 6404(g) notice date.

(6) See IRM Exhibit 8.19.11-1 for a sample Form 4605-A. Although this exhibit is from IRM 8.19.11 on Agreed Cases, the format is the same. However, instead of "Appeals Settlement," "FPAA" should be inserted.

(7) Form 4605-A is not needed for a no-change case.

(1) The Form 886–Z is not part of the FPAA. However, it is necessary in order to show the partners' corrected partnership items and penalty or affected item adjustments.

(2) A separate Form 886-Z should be prepared for each tax year.

1. Partners' addresses are required on the Form 886-Z only when Appeals is mailing the FPAAs to the notice partners.

2. If Appeals is mailing the FPAAs to the notice partners, the TCS should request current IDRS information to verify the partner addresses and to determine if a joint return was filed by the partner.

(3) If there are non-notice partners, they should be listed together on a Form 886-Z separate from the Form 886-Z that lists notice partners.

(4) The Form 886-Z should only show the issues that changed from the Schedules K-1. It is unnecessary to show no-change issues. The CTFs will treat all issues not shown on the Form 886-Z as correctly shown on the Schedule K-1.

(5) The following should be clearly marked on the top or in the center of Form 886-Z:

1. "FPAA"

2. "Information Only – Do Not Mail to Taxpayer"

(6) The partner information on the Form 886-Z should be listed either alphabetically or in TIN order.

(7) Reconcile any notice and non-notice Form 886-Z to make certain that the total for column (3) equals 100%. The amounts shown on these forms, along with the items shown on the Schedule K-1 that have not changed, will be used by the CTFs to make the partners' recalculations.

(8) The TSUMYP and case file should be reviewed to distinguish between partners who have agreed (who will not receive an FPAA) and those who will receive an FPAA. Although the percentage of profits will equal 100%, the ordinary income (loss) shown on the Form 886-Z may not reconcile to the corrected distributable income on Form 4605–A due to the difference between base amounts of agreed and unagreed partners.

(9) Where penalties or affected items are at issue, columns (8) through (12) should be used to list the separate penalties and affected items.

1. For partnership tax years ending after August 5, 1997, see IRM Exhibit 8.19.11-2. In this exhibit, there is a 20% negligence penalty and an at-risk affected item.

(10) Form 886-Z is not needed for a no-change case.

(11) Refer to IRM 8.19.10.4.3.1 for additional information about this form.

(1) An "Information Only" page (which is not a numbered page of the FPAA) is needed in the FPAA for partnership tax years ending after August 5, 1997, if there are affected items other than penalties.

(2) For partnership tax years ending after August 5, 1997, the applicability of penalties, additions to tax and additional amounts are determined at the partnership level and are directly assessed following the partnership proceedings. However, affected items will not be a part of the FPAA (in either the Schedule of Adjustments page or in the Explanation of Adjustments). The FPAA must, however, contain a determination of the underlying issues that affect the affected items at the partner level.

1. The "Information Only" page will be included in the FPAA mailing stating that affected items other than penalties may be raised after the TEFRA proceedings are concluded.

2. See Exhibit 8.19.12-6 for a sample "Information Only" page for a partnership tax year ending after August 5, 1997.

(1) The FPAA for both the named TMP and the generic TMP will include the following documents:

1. Letter 1830 (see instructions above)

2. Entire agreement form (Form 870–PT)

3. Explanation of Adjustments (see instructions above)

4. "Information Only" page, if applicable (see instructions above)

   Note: An FPAA should be prepared for the named TMP in his capacity as the named TMP even if he has agreed to the settlement or otherwise had his partnership items converted to nonpartnership items. However, if it is known that there is no longer a named TMP (for example, the named TMP is deceased and the partnership has not designated a new TMP), then an FPAA does not have to be prepared for the named TMP.

(2) The agreement form for each TMP FPAA consists of the signature page of the Form 870PT, the instructions for signing, and the Schedule of Adjustments page.

1. On the Form 870-PT that is included with the generic TMP FPAA, the TIN field should either be left blank or include the TIN of the partnership. Also, the "Name of Tax Matters Partner" field should be left blank.

2. On the Form 870-PT that is included with the named TMP FPAA, the TIN field should be the TIN of the TMP, the TIN of the partnership, or be left blank. The "Name of Tax Matters Partner" field should include the name of the TMP.

(3) Each page of the FPAA (including the agreement form, instructions for signing, and the Schedule of Adjustments page) should clearly state the page number. However, the "Information Only" page (if applicable) is not a numbered page.

(4) If there is a valid Power of Attorney on file for the named TMP, prepare an FPAA for the representative if the Power of Attorney includes the language in IRM 8.19.6.5.

(5) If there is a valid Power of Attorney on file for the partnership, prepare a generic TMP FPAA for the partnership representative.

(1) APS will take the following steps to monitor the FPAA.

1. Maintain a copy of the FPAA package and Form 3210 in the administrative file.

2. Place the administrative file in suspense until Appeals receives verification that the CTF issued the FPAAs to the TMP.

(2) The Docketed Information Management System (DIMS) is used to monitor the FPAA as well as statutory notices of deficiency. DIMS is a subsystem of ACDS, as described in IRM 8.20.3.1.

(1) When APS receives verification (acknowledged Form 3210, copies of the TMP FPAAs, and copy of the Certified Mailing List) from the key case CTF that the FPAAs have been mailed to the TMP, APS will take the following actions:

1. On ACDS, update the SNTYPE field with "FPAA."

2. On ACDS, update the SNDATE field using the date that the FPAAs were mailed to the TMP from the Certified Mailing List. The SN Expires date will be computer generated.

3. Update SN issued to "Y" on return level of ACDS.

4. Place copies of the acknowledged Form 3210, the TMP FPAAs, and the Certified Mailing List in the administrative file.

5. Return the administrative file to suspense.

(1) APS will take the following steps to monitor the FPAA.

1. Maintain a copy of the FPAA package and Form 3210 in the administrative file.

2. Place copies of the TMP FPAAs (including any issued to Powers of Attorney) and the Certified Mailing List in the administrative file.

3. Place the administrative file in suspense.

(2) The Docketed Information Management System (DIMS) is used to monitor the FPAA as well as statutory notices of deficiency. DIMS is a subsystem of ACDS, as described in IRM 8.20.

(1) After APS issues the FPAAs to the TMP, APS will take the following actions:

1. On ACDS, update the SNTYPE field with "FPAA."

2. On ACDS, update the SNDATE field using the date that the FPAAs were mailed to the TMP from the Certified Mailing List. The SN Expires date will be computer generated.

3. Update SN issued to "Y" on return level on ACDS.

(2) When APS receives the acknowledged Form 3210 from the CTF, place a copy in the administrative file.

(1) APS will take the following steps to monitor the FPAA.

1. Maintain a copy of the FPAA package and Form 3210 in the administrative file.

2. Place copies of the TMP and notice partner FPAAs (including any issued to Powers of Attorney) and the Certified Mailing List in the administrative file.

3. Place the file in suspense.

(2) The Docketed Information Management System (DIMS) is used to monitor the FPAA as well as statutory notices of deficiency. DIMS is a subsystem of ACDS, as described in IRM 8.20.3.1.

(1) After Laguna Niguel APS issues the FPAAs to the TMP, take the following actions:

1. On ACDS, update the SNTYPE field with "FPAA."

2. On ACDS, update the SNDATE field using the date that the FPAAs were mailed to the TMP from the Certified Mailing List. The SN Expires date will be computer generated.

3. Update SN issued to "Y" on return level on ACDS.

(2) When APS receives the acknowledged Form 3210 from the CTF, place a copy in the administrative file.

(1) IRC 6226 establishes rules for the judicial review of an FPAA. The time for filing a petition for readjustment (petition) is different for the TMP than for the other partners.

(2) The TMP has the exclusive right to file a petition with the Tax Court, the U. S. District Court for the district where the partnership's principal place of business is located, or the U.S. Court of Federal Claims within 90 days from the date the IRS mailed the FPAA to the TMP. No other partner may file an action within this 90-day period.

(3) If the TMP does not file a petition, any notice partner or 5-percent group may file a petition with any of the courts within 60 days after the expiration of the 90 day period.

(4) The TMP may file a petition during the first 90 days in the capacity as TMP or during the remaining 60 day period as a notice partner (Barbados #6 Ltd. v. Commissioner, 85 T.C. 900 (1985)). If a 5-percent group is formed to file a petition, all members of the group must join in filing the petition.

(5) If a notice partner or 5-percent group files a petition within 90 days from the date IRS mailed the FPAA to the TMP, but the TMP and no other partners file a petition, the premature petition is deemed filed on the last day of the 60 day period (IRC 6226(b)).

(1) The TMP has first priority to select the court where the petition will be filed. The TMP must file the petition in the capacity as TMP during the 90 day period described above.

(2) If the TMP does not file during the 90 day period, any notice partner or 5-percent group may file a petition during the following 60 day period. If more than one petition is filed during the 60 days, the first petition filed in the Tax Court will control and all other petitions will be dismissed. If no petition is filed in Tax Court, the first petition in any other court will go forward and the remaining petitions will be dismissed.

(3) For purposes of determining which U. S. District Court will have jurisdiction, the partnership’s principal place of business will be the location on the date the petition is filed.

(1) APS prepares the Form 14298 to electronically transmit the default closing package to the CTF. The documents required for the default closing package (the FPAA package) are saved on the shared server used for electronic transmission.

(2) APS will enter the one-year statute date on ACDS. In computing the one-year statute date, one day should be subtracted from the date that the FPAA defaulted.

(3) APS will electronically transmit the default closing package to the key case CTF.

(4) It is not necessary to prepare a new Form 5402. The Form 5402 that was previously prepared is sufficient to close the case.

(1) All TEFRA key cases must be closed by Laguna Niguel APS.

(2) After Laguna Niguel APS has received an acknowledged Form 3210 from the CTF and the CTF has input a one-year statute date on PCS for all direct partners, APS closes the case from ACDS as follows:

• Closing code 05 and date closed

• ACTION--ACKCLS & TODATE

• RevsdTax--Enter revised tax from Form 5402 (also enter PropdTax if not previously entered); if the Form 5402 does not contain the revised tax, have the ATT compute the amount using IRM Exhibit 8.19.10-1

  Caution: The revised tax is not actually assessed against the partnership and should not be entered on Form 5403.

• See IRM 8.20.7 for instructions in completing Form 5403; in addition, enter "TEFRA Key Case Closing" in the Special Handling section

(3) After the key case CTF has input the one-year statute date on PCS for all direct partners and has released the AIMS "H" freeze, Laguna Niguel APS may close the case from AIMS unless it has a PICF code of 4 or 5. The case should not be sent to the key case CTF unless it has a PICF Code of 4 or 5.

(4) If the case has a PICF Code of 4 or 5, it is a partner in another TEFRA partnership and has to be sent to the key case CTF. Instructions for identifying the key case CTF may be found on the Appeals TEFRA website. Instructions for sending the case to the key case CTF are as follows:

1. Prepare Form 5403 following partial procedures. In item A, Special Handling Instructions, write "TEFRA Linkage – After Partial Closing, Forward to CTF."

2. Update the AIMS database to status 34. Update the PBC to 295 (for the Brookhaven CTF) or 398 (for the Ogden CTF).

3. Forward the administrative file via Form 3210, to the appropriate CTF. Ensure that a copy of the input Form 5403 is attached to the face of the return. The CTF will place the file in suspense awaiting the outcome of the TEFRA examination.

(5) Laguna Niguel APS ensures that copies of the following documents are in the administrative file before it is closed:

1. Appeals Form 4605–A

2. Appeals Form 886–Z

3. Appeals Case Memorandum

4. Affected item Appeals Case Memorandum (if applicable)

5. Form 5402

6. All agreement forms or closing agreements for partners who agreed

7. Form 5403 (original)

8. Partnership statute extensions

(1) Notify the key case CTF that the TEFRA key case is docketed.

(2) Instruct the CTF to mark the key case administrative file to show the docket number and to insert a statement that no agreement forms should be executed without contacting the AO first.

(3) Instruct the CTF to add the docket number to the PCS database.

(4) The key case CTF should be notified with this information using secure email.

(1) Petitions to the U.S. Court of Federal Claims or a U.S. District Court may be listed on the Electronic Docket List (EDL).

(2) If there is no listing on the EDL, a copy of the first page of the petition will be accepted by APS as authorization to close these cases from ACDS.

(1) If a valid petition is filed with one of these courts, APS will give the file to the ATT. The ATT AO will prepare a closing package to be sent to the key case CTF in order that the partners may be assessed whether or not the deposit was paid. The ATT AO will electronically send the closing package to the CTF using Form 14298, Appeals TEFRA Electronic Notice Package Check Sheet, as the cover sheet. The ATT AO is responsible for the accuracy and completeness of the Form 14298, including the one-year statute date.

(2) Filing a petition with the U.S. Court of Federal Claims or with a U.S. District Court does not trigger the one-year statute date. However, for control purposes the ATT AO will enter a one-year statute date on the Form 14298 instructing the CTF to enter a one-year statute date on PCS.

(3) The ATT AO will return the case to APS to suspense until the "H" freeze is released.

(4) The FPAA package previously sent to the CTF includes all the information the CTF needs which may have included Letters 1830, Schedule of Adjustments, Explanation of Adjustments, Form 4605-A, Form 886-Z and the Information Only page. Additionally, a copy of the electronic docket list (EDL) or first page of the petition or complaint should be transmitted to the CTF.

(5) It is not necessary to prepare a new Form 5402. The Form 5402 that was previously prepared is sufficient to close the case.

(1) After the "H" freeze is released, APS will forward the administrative file to Associate Area Counsel via Form 2828, Transmittal Memorandum. Associate Area Counsel will forward the file to the Department of Justice. APS may then close the case from ACDS as follows:.

• ACTION--ACKCLS

• Statute Code—DOCKT

• For cases petitioned to the U.S. Court of Federal Claims, input Docket Number 99999-99C and Closing Code 18.

• For cases petitioned to a U. S. District Court, input Docket Number 99999-99D and Closing Code 19.

• Closing date--enter date closed off ACDS.

• Notes: enter "Department of Justice--Petitioned U.S. Court of Federal Claims or U. S. District Court," whichever is applicable

• Action – ACKCLS

• To Date-- Date closed.

• Statute Date--remove any date

• RevsdTax--Enter revised tax from Form 5402 (also enter PropdTax if not previously entered); if the Form 5402 does not contain the revised tax, have the AO compute the amount using IRM Exhibit 8.19.10-1

  Caution: The revised tax is not actually assessed against the partnership and should not be entered on Form 5403.

• See IRM 8.20.7 for instructions in completing Form 5403; in addition, enter "TEFRA Key Case Closing" in the Special Handling section

(2) After the key case CTF has input the one-year statute date on PCS for all direct partners and has released the AIMS "H" freeze, APS may close the case from AIMS unless it has a PICF Code of 4 or 5.

(3) If the case has a PICF Code of 4 or 5, it is a partner in another TEFRA partnership and must be updated on AIMS to the key case CTF (even though the file is sent to Associate Area Counsel). Instructions for identifying the key case CTF may be found on the Appeals TEFRA website. Instructions for updating the case to the key case CTF are as follows:

1. Prepare Form 5403 following partial procedures. In item A, Special Handling Instructions, write "TEFRA Linkage – After Closing, Forward to CTF".

2. Update the AIMS database to status 34. Update the PBC to 295 (for the Brookhaven CTF) or 398 (for the Ogden CTF).

   Note: If the case will be updated on AIMS to the key case CTF, APS should contact the TEFRA Coordinator at the key case CTF to explain why this was done.

(4) Refer to IRM 8.19.13.3 for procedures to follow when the case is resolved by the Department of Justice and is returned to Appeals through Associate Area Counsel.

(1) Ensure that the following documents are prepared and are in the file before closing the case:

1. Form 14298

2. Form 5403

3. Form 5402

4. Appeals Form 4605-A

5. Appeals Form 886-Z

6. Appeals Case Memorandum (ACM)

7. Form 2828 (Transmittal Memorandum)

8. Copies of all FPAAs that were issued

9. Copy of EDL or first page of petition/complaint

10. Form 2275

11. Affected item Appeals Case Memorandum (if applicable)