4.31.2. TEFRA Examinations - Field Office Procedures

(1) TEFRA was passed in 1982 to allow examinations and statutes to be controlled at the partnership level. This eliminated the need to control each individual partner statute. It also unified the litigation process whereby the tax matters partner or a notice partner may commence such litigation at the partnership level by filing a petition rather than each individual partner. The Pass-through Control System (PCS), formerly Partnership Control System, was created to establish an electronic linkage between the partnerships and their underlying partners. This helps ensure partners, no matter how complex the partnership structure, are issued notices and adjusted in a timely manner. PCS linkage allows the campus to work the partners so examiners can focus on partnership examinations. PCS also allows the campus to systemically generate notices, control statutes, and gather closing information.

(2) Section 1101 of the Bipartisan Budget Act (BBA) of 2015 repealed TEFRA partnership and Electing Large Partnership (ELP) provisions beginning with tax years beginning 1/1/2018. BBA has replaced TEFRA and ELP with an entirely new partnership audit regime. The new regime provides for determination, assessment and collection of underpayments at the partnership level unless certain elections are made by the partnership.

(3) Generally, all partnerships with tax years beginning 1/1/2018 will be subject to the BBA centralized partnership audit regime. Certain eligible partnerships may make an election out of the BBA regime. However, the law allows eligible partnerships with tax years that begin 11/3/2015 to 12/31/2017 to elect into the BBA regime when they are initially notified of selection for examination (Early Election). Temporary regulations (301.9100-22T) providing the time, form and manner for making the election were published on August 5, 2016 as Treasury Decision (TD) 9780. The final regulation (301.9100-22), was published on August 9, 2018 as T.D. 9839.

(4) This IRM is still in effect for all TEFRA partnerships and remains in effect for partnership years beginning before January 1, 2018.

(1) TEFRA policy was established in response to the partnership provisions of the Tax Equity and Fiscal Responsibility Act (TEFRA) of 1982 and remains in effect for partnership years beginning before January 1, 2018 and filed on or after September 3, 1982.

(1) The Director, SB/SE, Headquarters Examination, Field and Campus Policy (SE:S:DCE:E:HQ:EFCP) is responsible for:

1. Coordinating and implementing TEFRA policy changes;

2. Coordinating resolutions for TEFRA related problems; and

3. Updating this Handbook.

(2) The SB/SE, Program Manager, Examination Field and Campus Policy, Campus Exam & Field Support (SE:S:DCE:E:HQ:EFCP:CEFS) is responsible for:

1. Ensuring that TEFRA procedural changes and computer program changes are implemented and coordinated with area office and campus examination personnel;

2. Monitoring and evaluating area office and campus examination PCS quality control procedures.

(3) Field Territory Managers, Field Area Directors, Director over Large Business and International (LB&I) Ogden and Director, Examination - Brookhaven, are responsible for ensuring that TEFRA policies and procedures are followed.

(4) Field Examination Managers are responsible for:

1. Ensuring the training of Field Exam Revenue Agents in TEFRA procedures;

2. Acting on PCS reports in a timely manner to protect TEFRA statutes and assure an accurate PCS database.

(5) The Technical Services Pass-through Coordinator (TSPC) works with:

• The Campus TEFRA coordinator(s)

• The Field Exam Revenue Agents

• Other campus functional areas to ensure timely processing of TEFRA related returns

• Appeals TEFRA/BBA team (ATT)

(1) Program Reports: Each year an exam plan is created for partnership examinations.

(2) Program Effectiveness: The exam plan is monitored to ensure the partnership examination objectives are met. Open examinations are monitored to ensure a TEFRA determination is made and that the TMP Notice of Beginning of Administrative Proceeding (NBAP) date is entered on Examination Returns Control System (ERCS).

(1) Technical Services Pass-through Coordinators (TSPC) monitor a report to ensure TEFRA returns are identified in a timely manner. The Audit Inventory Management System (AIMS) provides a report for TEFRA one year statute dates, AMS 4940, that the field monitors to ensure field-controlled partner cases are worked timely.

(1) There are several terms unique to TEFRA. Examples of these words:

(1) The following IRM cross-references may be helpful:

1. IRM 4.31, Pass-Through Entity Handbook

2. IRM 4.4, Audit Information Management System (AIMS) - Validity and Consistency

3. IRM 8.19, Appeals Pass-Through Entity Handbook

4. IRM 25.6.23, Statute of Limitations, Examination Process-Assessment Statute of Limitations Controls

(1) Identification of returns as TEFRA is necessary to have a valid assessment of tax, because the TEFRA partnership rules and the deficiency procedures are mutually exclusive. If the Service applies the wrong procedures, e.g., erroneously proceeds at the partnership level rather than at the partner level, or vice versa, barred deficiencies and/or refunds can result. See IRM 4.31.2.2.7, Making a Reasonable Determination of Whether the Partnership is Subject to the TEFRA Procedures, for an explanation of a reasonable determination of whether TEFRA or ILSC procedures apply. Throughout this IRM the term NonTEFRA refers to partnership determinations that are not TEFRA. Investor Level Statute Controls (ILSC) are the procedures used for partnership returns that meet the small partnership exception and do not elect TEFRA treatment for tax years prior to January 1, 2018 and after August 5, 1997. ILSC procedures are found in IRM 4.31.5.

(2) TEFRA is applicable for partnership tax years beginning prior to January 1, 2018. Tax years beginning January 1, 2018 or later are subject to Bipartisan Budget Act (BBA) of 2015. See IRM 4.31.9, Centralized Partnership Audit Regime (BBA) Field Examination Procedures unless an election out of BBA is made under Code Section 6221(b).

(3) The examiner must determine, for each taxable year, whether TEFRA procedures apply. Comments on Form 4318, Examination Workpapers Index, or Form 5606, Workpapers Cover Sheet, are required from the examiner as to whether the return is TEFRA or ILSC, and the reasons supporting this conclusion. The TEFRA determination needs to be recorded on the Form 15260, Determination of Pass-through Audit Regime, must be completed to ensure the correct regime is used. The Form 13813, TEFRA Partnership Procedures Check Sheet, is required for all TEFRA examinations.

(1) IRC 6231(a)(1) provides that TEFRA rules apply to all partnerships required to file information returns under IRC 6031(a) whose tax years begin on or after 9-3-1982 and before 1-1-2018, except:

1. Partnerships meeting the small partnership exception; and

2. Partnerships electing out of partnership status pursuant to IRC 761(a). (See IRM 4.31.2.3.17, Procedures for Certain Conversions Involving Partnerships.)

(2) The small partnership exception applies to partnerships consisting of 10 or fewer partners, each of whom is an individual (other than a nonresident alien), a C corporation, or an estate of a deceased partner.

(3) A foreign corporation generally will be considered a C corporation for purposes of making a TEFRA/NonTEFRA determination. This includes a partner who files a Form 1120-F. However, because the foreign corporation filing an Form 1120-F could file Form 8832, Entity Classification Election, electing to be treated as a Disregarded Entity (DE).

(4) The Form 15260 , Determination of Pass-through Audit Regime, is used to make the proper TEFRA determination.

(5) Therefore, if at any time during the tax year there are more than 10 partners or if any of the following entities or persons are partners, then the partnership is not a small partnership and is subject to TEFRA procedures:

• Another partnership.

• A Limited Liability Company (LLC) which files as a partnership or is treated as a single member LLC disregarded for federal tax purposes.

• Any type of trust, even a grantor trust.

• A nominee.

• A nonresident alien individual.

• An S corporation.

(6) The Master File transcript, Command Code (CC) MFTRA and CFOL CC BMFOL "E" has a TEFRA indicator included that was to be utilized in determining if a partnership was covered by the TEFRA procedures. This TEFRA indicator is not accurate and should not be relied on in determining whether or not a partnership is TEFRA.

(1) A partnership eligible to be excluded from the TEFRA proceedings under the small partnership exception rules may elect to be covered by the TEFRA procedures. (See IRC 6231(a)(1)(B)(ii).)

(2) The requirements for making the election to be covered by the TEFRA procedures are explained in Treas. Reg. 301.6231(a)(1)-1(b)(2). A Form 8893, Election of Partnership Level Tax Treatment, is available for taxpayers who wish to make this election. This form standardizes the statement required in the Regulations.

(3) If a partnership makes the election to be covered by the TEFRA procedures, it is binding for the partnership taxable year to which the return relates and all subsequent partnership taxable years unless revoked with IRS consent. It is important to note that when a TEFRA election is revoked, all years the TEFRA election was in effect remain TEFRA.

(4) For years 2004-2007 Form 1065, Schedule B, Question 4 was changed to inquire as to whether the partnership filed a TEFRA election or Form 8893 which is used to make the TEFRA election. For years 2008 through 2017, Form 1065, Schedule B, Question 5 inquires whether the partnership filed a TEFRA election or Form 8893. If the partnership answers yes to this question, the return is flagged Audit Code 4.

(5) A partnership may revoke a previously filed election with IRS consent. Form 8894, Request to Revoke Partnership Level Tax Treatment Election, is to be used by a partnership requesting that its prior TEFRA election be revoked. The instructions on this form require the partnership to file the revocation at the Ogden campus.

(1) A partnership eligible to be excluded from the TEFRA proceedings under the small partnership exception rules may elect to be covered by the TEFRA procedures. (See IRC 6231(a)(1)(B).)

(2) If a partnership makes the election to be covered by the TEFRA procedures, it is binding for the partnership taxable year to which the return relates and all subsequent partnership taxable years unless revoked with IRS consent.

(3) The election is filed with the partnership return for the year the election is made.

(4) Currently there is no requirement that the partnership file a copy of the election to be covered by the TEFRA procedures with each subsequent year's partnership tax return. The examiner will inquire if an election was made in any prior year. If the partnership responds it has not made an election, it should be so noted in the examination workpapers.

(5) If the partnership has filed an election to have the TEFRA procedures apply, secure a copy of the election to determine if the election meets the requirements of the regulations. If the election is correct, staple the copy to the back of the front page of the partnership return. If the election is not correct, consult with the TSPC to determine if the election is valid as filed or what further action should be taken.

(6) The requirements for making the election to have the TEFRA procedures apply are as follows: (See Treas. Reg. 301.6231(a)(1)-1(b)(2).)

1. The statement making the election should be attached to the partnership return for the first taxable year for which the election is to be effective.

2. The statement should include the name and the employer's identifying number (EIN) of the partnership.

3. The statement should say the partnership elects to be covered by IRC Sections 6221 through 6234 for the tax year ending 12/31/XX and all subsequent years. (If the partnership has a year-end other than 12/31 (a fiscal year-end), then that year end would be used instead of 12/31/XX).

4. The statement shall be identified as an election under IRC 6231(a)(1)(B)(ii), shall be signed by all persons who were partners of that partnership at any time during the partnership taxable year to which the return relates, and shall be filed at the time (determined with regard to any extension of time for filing) and place prescribed for filing the partnership return.

5. For any partnership taxable year for which the due date of the return (determined without regard to extensions) is before January 2, 2002, the partnership may file the statement described in (d) on or before the date which is one year before the date specified in IRC 6229(a) for the expiration of the period of limitations with respect to that partnership (determined with regard to extensions of that period under IRC 6229(b)).

(1) For tax years 2004 - 2007, Schedule B, question (4) inquired as to the partnerships intent to file a TEFRA election and attach the Form 8893 to the return. For tax years after 2008 and prior to January 1, 2018 , this inquiry appears in Schedule B, Question (5).

(2) For tax years before 2004, there were no questions about an election. Schedule B, Question 4 asked if the partnership was subject to TEFRA. The TMP may think the partnership can elect to have the TEFRA procedures apply to the partnership by checking "yes" in response to the question on Schedule B and/or designating a TMP. However, this is not a valid election meeting the requirements of the regulations.

(3) The examiner needs to check to see if the partnership made an election, or if the partnership is subject to TEFRA by statute.

(4) Chief Counsel's position is that checking "yes" in response to question (4) on the Form 1065, Schedule B, for partnership tax years 2004 - 2007, and Question (5) on the Form 1065, Schedule B for partnership tax years 2008 through 2017, and/or designating a TMP in the space provided on the Form 1065, do not constitute an election to have the TEFRA procedures apply. The directions for completing the partnership return also state answering "yes" to this question does not constitute an election into TEFRA.

(1) If at any time during the taxable year the number of partners exceeds the small partnership exception, the partnership will be subject to the TEFRA provisions.

(2) A partnership may have more than 10 partners during the year, and still meet the small partnership exception, because the partnership never had more than 10 partners at any point in time. Sales of partnership interests will cause more than 10 Schedules K-1 to be filed, but there may never be more than 10 partners at any point in time for the small partnership exception to apply.

(3) The small partnership exception does not apply to a partnership for the taxable year if any partner in the partnership during the taxable year is a pass-through partner. (Treas. Reg. 301.6231(a)(1)-1(a)(2).) A partnership consisting of three partners, two individuals and a partnership or S corporation, will not meet the small partnership exception.

1. A grantor trust is a pass-through partner even though the trust is not required to file a return.

2. A limited liability company (LLC) may be a pass-through entity. See IRM 4.31.2.3.22.1, LLCs that are Disregarded Entities, for information on determining if the LLC is a pass-through entity.

3. LLCs that are disregarded entities may be treated as pass-through entities when applying the small partnership exception. See Rev. Rul. 2004-88. Consult with the TSPC on any questions.

(4) IRC 6231(a)(1)(B)(i) provides that for the purposes of the small partnership exception "a husband and wife (and their estates) shall be treated as 1 partner". This provision is unqualified and thus should apply to a husband and wife regardless of the manner in which they hold their interests or file their returns. A grantor trust is counted as a partner in its own right.

(5) In general, an estate must file a return if the estate is not closed within one year. An estate may take several years to finalize and close. The estate will file a Form 1041, U.S. Income Tax Return for Estates and Trusts. IDRS research should be utilized to determine how long the estate has filed returns. To apply the small partnership exception, the examiner will have to determine if the estate is simply filing the returns while the estate is being closed out, or if a trust was established by the estate.

(6) A partner must have a proprietary interest in profits or capital. Therefore, if a Schedule K-1 does not indicate an ownership interest, does not show a distribution of any partnership items, and does not show a capital account balance, the person in question may not be a partner for the taxable year involved. Consult Area Counsel about Federal law to determine if the partner is really a partner.

(1) IRC 6231(g) was added by TRA 1997.

(2) If, on the basis of a partnership return for a taxable year, the Service reasonably determines that the TEFRA procedures apply to the partnership for the tax year under examination but the determination is erroneous, then the TEFRA procedures will be extended to the partnership (and its items) and to partners of the partnership for the taxable year under examination. (See IRC 6231(g)(1).)

(3) If, on the basis of a partnership return for a taxable year, the Service reasonably determines that the TEFRA procedures do not apply to the partnership for the tax year under examination but the determination is erroneous, then the TEFRA procedures shall not apply to the partnership (and its items) for the taxable year under examination or to the partners of the partnership. (See IRC 6231(g)(2).)

(4) IRC 6231(g) should generally be relied upon when statute limitations prevent changing the audit procedures (changing from TEFRA procedures to ILSC procedures, or vice versa). If the statute allows, then the examiner should switch audit procedures based upon the new determination.

(1) There are occasions where both the TEFRA and NonTEFRA statute must be protected. These key cases are controlled as both TEFRA and NonTEFRA. This is done when it is unclear whether a key case is TEFRA or NonTEFRA to protect the government's interest.

(2) When a key case is controlled as both TEFRA and NonTEFRA, both sets of procedures must be followed. See IRM 4.31.2.3.9.2.1. TEFRA Linkage, and IRM 4.31.5.12.3, Linking the Key Case and Investors on PCS. This ensures that both the TEFRA and ILSC functions in the campus are aware of the dual controls on these key cases.

(3) For dual status cases, both the TEFRA and NonTEFRA statutes need to be protected. The NonTEFRA statute is controlled at the investor level, and should be extended using Form 872, Consent to Extend the Time to Assess Tax, if needed.

(4) If both procedures must be followed coordination is necessary with the TSPC and Campus TEFRA Coordinator.

(1) If you need to contact a taxpayer designated as Potentially Dangerous Taxpayers (PDT) or Caution Upon Contact (CAU), please refer to IRM 25.4, Employee Protection, for the most current guidance.

(1) The Letter 2205-D, Initial Contact to Schedule Appointment, must be mailed to the partnership as the initial contact with all partnership examinations. The initial contact letter is provided to all partnerships. For tax years beginning after November 2, 2015, the partnership has an opportunity to file an early election into BBA.

(2) Before initiating a TEFRA key case examination, the time frames and procedures outlined in Exhibit 4.31.2-2, TEFRA Pass-Through Examination Time Chart, and Exhibit 4.31.2-3, TEFRA Key Case Procedures, must be carefully reviewed. Unless sufficient time remains on the TEFRA key case statute of limitations, i.e., the IRC 6229(a) statute, the examination will not be started. At least one year is considered sufficient time.

(3) If there are less than 12 months remaining on the TEFRA key case statute of limitations, approval is required from the Area Director (SB/SE) or the Director of Field Operations (LB&I) to start an examination of the key case. A copy of the short statute memorandum to be used to secure approval is on the TEFRA web site at: LBI-SBSE_ShortStatuteAuthorizationMemo.docx (irsnet.gov)

1. The memorandum of approval must identify the key case entity and contain the original signature (facsimile stamp is not acceptable) of the Area Director (SB/SE) or Director of Field Operations (LB&I). The circumstances surrounding the late start of the examination will be stated. The explanation should state why it is beneficial to the government to initiate an examination (For example, compliance purposes or large, unusual or questionable deductions).

2. The memorandum should be written to the Area Director (SB/SE) or Director of Field Operations (LB&I) from the Territory Manager.

3. Additional approval is not required to start the examination of a second-tier pass-through entity where the examination is limited to making adjustments stemming from the examination of the first-tier pass-through entity; however, approval would be required for the second-tier pass-through entity where another issue (i.e., a partnership item and/or affected item that requires a partnership level determination) is examined.

(4) A TEFRA examination can be initiated with less than twelve (12) months remaining, if the following conditions are met:

1. If Area Director (SB/SE) or Director of Field Operations (LB&I) approval is obtained with less than 12 months remaining on the TEFRA key case statute of limitations, the key case examiner is required to maintain close coordination with the CPF to ensure all statutory requirements are met.

2. If a case is opened and there is less than 7 months remaining on the TEFRA key case statute of limitations before a valid linkage package is sent to the campus, the case must be established and controlled in the field. The key case examiner is responsible for:

If less than 7 Months Remain on the Partnership Statute
Contacting and coordinating with their TSPC and the CPF; Coordination with the review function to ensure that there is timely issuance of all notices; Manual linkage on PCS using Form 6658, Notice of Special Investor Action; Protection of all statutes for the key case and the investors; and Match Schedules K-1 to all direct and indirect partner returns.

(5) If the TEFRA procedures or the TEFRA linkage is not timely initiated (before there is less than seven months on the statute), as required above, then the examiner assumes all of the responsibilities of the CPF including administrative functions, issuances of all notices, the recognition of and the actions required within the proper time frames and the proper resolution of all of the related investor cases. In this event, the TSPC should be contacted immediately to determine appropriate action.

(6) Once all the returns are secured by the field, the statute is extended, and all administrative work is current, the agent should consult with the campus regarding the subsequent transfer of the cases to campus control.

(7) PCS linkage is mandatory for all TEFRA partnership examinations.

1. In general, requests for PCS Linkage packages must be submitted by the examiner to the CPF within 120 days of the NBAP being issued at the partnership level.

   Exception: Linkage packages can be submitted sooner than 120 days if potential adjustments have already been identified. (Refer to IRM 4.31.2.3.9.1, No Change within 45 days). In these instances, potential adjustments must be clearly reflected on the PCS linkage request check sheet, or the package may be delayed or rejected.

2. In order to deviate from the mandatory linkage requirement, the agent's Director of Field Operations or Area Director must get agreement from the Technical Services Territory Manager.

(8) The campus may delay linkage beyond the notice partners until firm adjustments are identified.

(1) Delinquent return procedures are used when the partnership files a return which is past the due date for filing including extensions to file. SFR procedures are used when the partnership fails to file a return when a return is due.

(2) For delinquent return and non-filer cases, confirm the entity exists on Master File. If the entity exists and there is a filing requirement, ensure it is consistent with the return filed or due.

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(1) IRC 708(b)(1) provides that a partnership terminates if "within a 12-month period there is a sale or exchange of 50 percent or more of the total interest in partnership capital and profits". Analytically, two basic questions arise when applying IRC 708(b)(1):

1. Does the transfer or disposition of a partnership interest constitute a sale or exchange?

2. If so, does it result in 50 percent or more of the total interest in partnership capital and profits being sold or exchanged during a twelve-month period?

(2) A partnership meeting the definition of a small partnership may for any taxable year elect to have TEFRA apply. The election applies for the taxable year of election and all subsequent taxable years unless revoked with the consent of the Secretary. There is no definitive answer or guidance on whether or not a technical termination under IRC 708 terminates a TEFRA election under IRC 6231(a)(1)(B)(ii). If the TEFRA key case entity under examination has made a TEFRA election, you should contact your local Area Counsel for advice.

(3) Whether a technical termination is recognized by the partnership and the proper returns are filed or whether the issue is being proposed during your examination, properly processing the partnership returns is challenging. Below, in no particular order, are four possible scenarios with instructions and procedures to assist you when a technical termination has taken place.

1. AIMS, ERCS, and PCS cannot control partnerships with multiple short periods with the same EIN/TIN on separate MF modules. Generally, the first short period return filed posts as the TC 150 and the second short period return posts as the TC 976. Although both the final and initial returns are original returns and should have their own modules, MF cannot create 2 separate modules or post 2 TC 150 returns to the same module in the same month.

2. Refer to IRM 4.31.2.3.4, Technical Terminations.

Caution: CI freeze present on MF - Contact your Fraud Technical Advisor immediately for assistance before taking any further actions.

(4) The examples assume the partnership is a calendar year taxpayer.

(1) These check sheets were designed to assist the examiner in completing the required TEFRA procedures. Manager involvement is required and their signature is required on all the mandatory forms.

(2) It is critical for the Service to follow TEFRA rules and procedures during examinations, since procedural errors can affect the validity of assessments, infringe on taxpayer rights, and result in improper disclosures of tax information.

(3) The following check sheets will be used when examining a partnership or a limited liability company filing as a partnership subject to the TEFRA procedures. The check sheets will serve as documentation to confirm the actions taken or decisions made in following the TEFRA procedures.

• Form 13813, Partnership Procedures Check Sheet: The completion of the Partnership Procedures Check Sheet is mandatory for every partnership examined. The completed check sheet along with the TEFRA determination and Form 15260 , Determination of Pass-through Audit Regime, will be included in the audit file to document that the partnership is or is not subject to the TEFRA procedures. The examiner’s manager is to review the Partnership Procedures Check Sheet and work papers to ensure that all appropriate TEFRA procedures have been completed. The manager’s signature on the Partnership Procedures Check Sheet is mandatory and indicates that the TEFRA procedures have been reviewed and have been correctly completed.

• Form 14090, TEFRA Linkage Check Sheet (LB&I) (for an LB&I key case), or Form 14091, TEFRA Linkage Check Sheet (SBSE) (for an SB/SE key case), provides guidance to the examiner in completing the information required for a complete TEFRA Linkage Package. This check sheet must be completed with attachments. The manager’s signature on the TEFRA Linkage Check Sheet is mandatory and indicates that the linkage package has been reviewed, is accurate and complete.

• Form 13828, Tax Matters Partner (TMP) Qualification Check Sheet: The completion of the Tax Matters Partner (TMP) Qualification Check Sheet is mandatory where the partnership has been identified as TEFRA. The position of TMP is created by statute for TEFRA partnerships; therefore, the check sheet is not applicable and should not be used for NonTEFRA entities or tax periods. The check sheet must be completed to determine whether the TMP is legally qualified to be the TMP or whether a new TMP must be designated. The manager’s signature on the Tax Matters Partner (TMP) Qualification Check Sheet is mandatory and indicates that the TEFRA procedures have been reviewed and have been correctly completed.

• Form 13827, Tax Matters Partner (TMP) Designation Check Sheet: This check sheet must only be completed when a new TMP is designated during the examination. Certain procedures are required when a TMP is designated and must be documented in the audit file. If the TMP is designated by the Service, the manager must complete Part III and sign in Block 1. A new Form 13828 must be completed to ensure the designated TMP is qualified.

(4) Each mandatory check sheet is required to be completed separately for each year in a multi-year audit.

(5) SB/SE examiners will file these check sheets and other TEFRA work papers under a separate line item in Section 600 on the Form 4318, Examination Workpapers Index. LB&I examiners will file the TEFRA check sheets and work papers under SAIN number 724 on Form 4764, LB&I Examination Plan.

(1) The TMP is the person identified to represent the partnership during an examination.

(2) The Form 13828, Tax Matters Partner (TMP) Qualification Check Sheet, should be completed as early as possible. The completion of the check sheet will ensure the person identified as TMP meets the qualifications prior to securing any statute consents or Powers of Attorney. If the person does not meet the qualifications, Form 13827, Tax Matters Partner (TMP) Designation Check Sheet, should be completed to designate a new TMP.

(1) There must be one year remaining on the TEFRA key case statute of limitations before starting the examination.

(2) The examiner will initiate a TEFRA examination on a partnership return by issuing a NBAP (Letter 1787-F) to the TMP. A separate NBAP should be sent for each year under examination. (See Form 13828, TMP Qualification Check Sheet, or the interactive tool on the TEFRA web site.)

(3) The NBAP is required by statute to be mailed. (IRC 6223)

(4) Examiners should issue NBAP letters as follows:

1. The TMP NBAP will be sent via certified mail. TMP NBAPs to foreign partnership addresses must be sent using registered mail.

   Note: The letter date should match the mailing date.

2. The TMP NBAP letter will be addressed TAX MATTERS PARTNER c/o key case entity name and address listed on the Form 1065, and the most current address, if different. If using the most current address, ensure our systems reflect that address. Document the case file that the letter is being sent in accordance with Treas. Reg. 301.6223(c)-1(f). The TMP should not be specified by name. This protects the government in the event the designated TMP is subsequently determined to not qualify to be the TMP. The TMP NBAP is addressed:

How to address the TMP NBAP
The Tax Matters Partner C/O Partnership Name Partnership Street Address (or PO Box) per Form 1065, or the most current address, if different. Partnership City, State, Zip per Form 1065, or the most current address, if different.

Note: It is important that the IRS return address information is added to the upper left side of the NBAP.

3. The 120 day statutory notification period begins with the issuance of the NBAP to the last identified notice partner.

4. While the information on the Form 1065 is the legal information base for addresses, the Service is not precluded from using other information in its possession in administering TEFRA procedures. The Service is not obligated to search its records but if it is known at the time of the issuance of the NBAP that the partnership address on the return is no longer valid, the TMP NBAP may be sent to the current address by certified mail. The agent needs to ensure that if using an address other than the one on the return, that the address is updated on our systems. The case file should be documented to show that the TMP NBAP was issued in accordance with Treas. Reg. 301.6223(c)-1(f).

5. Further investigation for the proper address should be made whenever the examiner determines there is a reasonable basis to question any information on the return or whenever inconsistencies become apparent.

6. If the TMP NBAP is mailed to an address other than the address shown on the Form 1065 and it is returned as undeliverable, an NBAP should be mailed by certified mail to the address reflected on the partnership return, which is the address required under IRC 6223(c). However, as stated above, it is a best practice to send the TMP NBAP to the Form 1065 address and the most recent address, if different.

(1) During many examinations, a Form 2848, Power of Attorney and Declaration of Representative, may be provided by the taxpayer.

(2) It is important to know that just because the TMP cannot be verified, identified, or designated in a timely manner, you don’t need to delay the examination of the TEFRA key case.

(3) The TMP, a general partner, a limited partner, a member manager and a non-managing member can execute a POA in a partnership proceeding.

(4) A valid POA can be secured from any direct or indirect partner or member in order to exchange information.

(5) An Office of Chief Counsel Generic Legal Advice Memorandum (GLAM) AM2015-004 was issued March 25, 2015, which explains this in detail. However, it is important to understand that this type of POA, i.e., one not executed by the TMP, may not be authorized to sign partnership level statute extensions.

4.31.2.3.8.1 (04-20-2017)

Partner or Member Other than the TMP Appoints a Power of Attorney

(1) Any partner or member can provide or receive partnership information. Any partner or member can execute a Form 2848 designating a POA to provide and receive partnership information, i.e., the books and records of the partnership, etc. This includes limited partners and members of LLCs that are not general partners or member-managers and includes both direct and indirect partners and members.

(2) This type of Form 2848 does not authorize the POA to represent the TMP and the POA does not have the powers of the TMP. This limits what the POA can do. For example, this type of POA cannot execute Form 872-P, Consent to Extend the Time to Assess Tax Attributes to Partnership Items, and Form 872-O, Special Consent to Extend the Time to Assess Tax Attributes to Partnership Items, partnership level statute extensions that extend the IRC 6229 TEFRA assessment statute for all direct and indirect partners.

Note: If the TMP of the key case is not readily identifiable, the examiner can still proceed with the audit of the key case by issuing Information Document Requests (IDRs), the TMP NBAP, exchanging information, and examining the books and records of the key case.

4.31.2.3.8.1.1 (04-20-2017)

Form 2848, Part I (Partner or Member Appoints)

(1) Part I, Line 1, of Form 2848, Taxpayer Information should be completed to reflect the name and TIN of the partner or member executing the POA.

(2) Jane Doe, a partner who is not the TMP, would complete Part 1, line 1, Taxpayer Information which would include her TIN.

(3) If the partner is DEF, Inc., a C corporation that is not the TMP, they too would complete Part 1, Line 1. The taxpayer’s name, address and EIN would be that of DEF, Inc.

(4) For this type of POA, i.e., one executed by a direct or indirect partner of the TEFRA key case, any other type of entity that is a partner, e.g., a trust, partnership, LLC, etc. would complete Part I of Form 2848 in the same way.

Note: In both examples the TIN is the TIN of the partner executing the Form 2848. In later examples where the TMP is executing the POA, the TIN will be the TIN of the TEFRA key case entity.

4.31.2.3.8.1.2 (04-20-2017)

Form 2848, Part 3 (Partner or Member Appoints)

(1) Under Description of Matter "Income, Including TEFRA Partnership Items" must be entered. Under Tax Form numbers, enter "1065 and applicable Tax Form(s) XXXX". Applicable tax forms would be 1040, 1120, etc., as appropriate. The applicable tax periods will be entered under Year(s) or Period(s).

(2) Completing Part 3 with the language above meets the requirements of Treas. Reg. 301.6223(c)-1(e) showing the Form 2848 applies to both Income tax and TEFRA related matters. Note that the Tax Form Number field in Part 3 should reflect Form 1065 and any other applicable tax forms, e.g., Form 1040, 1120, etc.

4.31.2.3.8.1.3 (04-20-2017)

Form 2848, Part 5 (Partner or Member Appoints)

(1) Care should be taken to identify any restrictions to the POAs authority to act for the partners or members.

(2) If there are to be any restrictions on the representative’s authority, those restrictions should be clearly stated in Part 5 of Form 2848. As an example, a restriction could be that the partner does not want their representative signing statute extensions.

4.31.2.3.8.1.4 (04-20-2017)

Form 2848, Part 7 (Partner or Member Appoints)

(1) The partner or member listed in Part 1 will sign the form.

4.31.2.3.8.2 (04-20-2017)

TMP of the TEFRA Key Case Appoints the Power of Attorney

(1) A TEFRA partnership Form 2848 executed by the key case entity’s TMP is completed in a very different way from a Form 2848 for a partner or even a NonTEFRA taxpayer. This is because the TMP is not only authorizing the POA to work with the examiner during a TEFRA partnership examination, but may be delegating some of the TMP’s powers to the representative. For example, the TMP may be authorizing the POA to execute partnership level statute extensions. If this is the case, it is essential to complete the Form 2848 correctly. Doing so prevents any ambiguity about the representative’s authority. It is also vital to determine what powers of the TMP are being delegated to the POA or if there are any restrictions to the POA’s authority to act for the TMP. It is always advised to seek counsel approval when a POA is signing a statute extension.

(2) When dealing with TEFRA partnerships and designating a TMP’s representative, failure to complete Form 2848 correctly can potentially lead to barred statutes.

4.31.2.3.8.2.1 (04-20-2017)

Form 2848, Part 1 (TMP Appoints)

(1) Part I, Line 1, of Form 2848, Taxpayer Information should be completed to reflect that it is the TMP of the TEFRA partnership executing the POA and the TMP’s relationship with the TEFRA key case entity.

(2) Joseph Smith, a general partner, is the TMP of XYZ Partnership. Part 1, Line 1 Taxpayer name and address would be entered as "Joseph Smith as Tax Matters Partner for XYZ Partnership" with the partnership’s address.

(3) Joseph Smith, the TMP of XYZ Partnership, is executing the TEFRA POA. Also note that the TIN entered is the TIN of the TEFRA key case entity and not the TIN of the TMP.

(4) When the TMP is an entity and not a natural person, other formats for completing Forms 2848 Taxpayer Information exist. If the TEFRA POA is being executed and the TMP is ABC Corporation, Part I, Line 1 should be entered as "ABC Co. as Tax Matters Partner for XYZ Partnership" with the partnership address. Again, the TIN is that of the key case entity when the TMP appoints the POA.

(5) ABC Co. is executing the POA as TMP of XYZ Partnership. If the TMP is an LLC that is filing as a corporation, Part I would be completed in a similar manner.

(6) When the TMP of the TEFRA partnership is a trust, a nominee, another partnership, or an LLC filing as a partnership or as a disregarded entity, it is recommended that you contact your geographically assigned TSPC or local Area Counsel for assistance.

4.31.2.3.8.2.2 (04-20-2017)

Form 2848, Part 3 (TMP Appoints)

(1) Under Description of Matter, "TEFRA Partnership Proceedings" must be entered. Under Tax Form Number enter 1065. Under Year(s) or Period(s) the applicable tax years will be entered.

(2) Completing Part 3 with the language above meets the requirements of Treas. Reg. 301.6223(c)-1(e), i.e., that the POA applies to TEFRA matters. In addition to "TEFRA Partnership Proceedings" and "Form 1065", each tax period to which the POA applies should be reflected on the Form 2848 in Part 3.

(3) When securing TMP executed POAs, remember that TMP is a position designated separately for each tax period; therefore, the TMP for one tax period may not be the TMP for the next. If you are securing a Form 2848 for more than one tax period, you must ensure that the TMP has remained the same for those tax years or you must secure separate Form 2848 from the different TMPs for the tax years they are designated the TMP.

(4) It is important to note that some acts performed by the TMP cannot be delegated to a POA. TMP powers that cannot be transferred to the POA include, but are not limited to, the filing of an AR on behalf of the partnership and signing a settlement agreement binding non-notice partners.

(5) Delegating the TMP’s authority to execute TEFRA partnership level statute extensions, e.g., Form 872-P and Form 872-O, to a representative is allowable; however, it is preferable and a best practice to have the TMP execute these types of statute extensions. If the TMP insists on having their POA execute this kind of consent, you should contact your local Area Counsel for assistance.

4.31.2.3.8.2.3 (04-20-2017)

Form 2848, Part 5 (TMP Appoints)

(1) Though not required, under Part 5a of Form 2848, it is a best practice to list each act the TMP authorizes the POA to perform. These would be acts other than the normal authorization to work with the examiner and exchange confidential information. As an example, if the TMP wants the representative to sign TEFRA partnership level statute extensions, normally signed by the TMP, it is a best practice that this act be stated separately in Part 5. This eliminates any ambiguity.

(2) Pay attention to Part 5b to identify any restrictions to the POA’s authority. If there are to be any restrictions on the representative’s authority, those restrictions should be clearly stated in Part 5 of Form 2848. As an example, a restriction could be that the TMP does not want the representative signing TEFRA partnership level statute extensions.

(3) Additional documentation must be secured by the examiner in the event someone other than the TMP is executing a TEFRA partnership level statute extension. A special statement and required documentation should be attached to Form 2848 and must be attached to any TEFRA partnership level statute extension, i.e., Form 872-P and Form 872-O.

(4) The special statement and documentation must include the following:

• Provide that it is an authorization for a person other than the TMP to extend the assessment period with respect to all partners.

• Identify the partnership and the person being authorized by name, address, and taxpayer identification number.

• Specify the partnership taxable year or years for which the authorization is effective.

• Be signed by all persons who were general partners at any time during the tax year or years for which the authorization is effective.

These procedures are required and are applicable to partnership tax years beginning on or after October 4, 2001.

(5) It is also important to read the partnership or LLC operating agreement to determine if the TMP’s powers have been restricted in any way. For example, it is not uncommon to find that the partnership agreement precludes the TMP from unilaterally signing any consent to extend the IRC 6229 TEFRA partnership assessment statute without the approval of the other partners. Or in the case of a partnership with more than 100 direct partners, the operating agreement may restrict the TMP’s power to bind non-notice partners in a settlement agreement.

(6) Though the Service relies on the TMP that was designated on that tax year’s Form 1065 Schedule B and not what is included in a partnership agreement, it is a best practice to address any conflicts between the partnership return and partnership’s operating agreement. So read the partnership or LLC agreement carefully. It is a good idea in the initial stages of the examination to ask questions to ensure there are no apparent restrictions on the TMP’s powers.

4.31.2.3.8.2.4 (04-20-2017)

Form 2848, Part 7 - Signatory Line (TMP Appoints)

(1) If the TMP is a natural person, that person will sign the document.

(2) If the TMP is not a natural person, i.e., the TMP is an entity like a C corporation, an S corporation, a trust, a partnership, or an LLC, etc., an authorized official of the TMP under state law signs for the TMP. Do not confuse the TMP with the TMP’s signing official. Remember, it is the entity that is the TMP and not its authorized signing official. The signature and title sections of Form 2848 should reflect that relationship.

(3) In this situation, Part 7 of Form 2848 should include the signature of the TMP’s signing official, the name of the signing official, his or her official title, and the name of the TMP entity. If you have to drill down a number of tiers to get to a signing official, the names of the tier entities should be reflected in the signatory’s title.

(4) To summarize, though the TMP may delegate many acts to an authorized representative, it is not recommended that the representative sign TEFRA statute extensions or settlements. If the TMP insists on delegating these acts to a representative, the examiner should immediately consult his or her TSPC or local Area Counsel for assistance.

(5) In a situation where the TMP is ABC Corporation and its CEO, John Doe, the signing official for the TMP, would sign Part 7, the Title would be completed as CEO of ABC Corporation.

(6) If the TMP of the TEFRA entity is a partnership, the signing official for the TMP is a general partner authorized to sign under state law for the pass-through partner. If the pass-through partner is an LLC, the signing official is a manager authorized to bind the LLC under state law. If the LLC that is TMP to the key case is itself a TEFRA entity, the LLC’s manager may be its TMP or may be an outside manager that is not a member. This is because of the special rule when designating a TMP for a TEFRA LLC when the LLC uses an outside management and has only members.

(7) If the pass-through partner LLC is itself a TEFRA entity, often times the TMP of the LLC is a member-manager that is authorized to bind the LLC under state law. However, under certain circumstances, the TMP may not have authority to bind the LLC under state law. This example illustrates a situation when the LLC’s TMP is not an authorized signing official of the LLC:

• ABC Partnership, a TEFRA entity, is being examined.

• DEF, LLC is the TMP for ABC Partnership.

• DEF, LLC, which is also a TEFRA entity, is a manager-managed LLC and has no member-managers.

• DEF, LLC uses an outside manager, John Sycamore.

• Jane Cypress is designated TMP of DEF, LLC under the provisions of Treas. Reg. 301.6231(a)(7)-2(b)(3).

• So DEF, LLC has both an outside manager and a TMP that is not a manager.

• Since the TMP of the TEFRA key case is an entity and not a natural person, its signing official is executing the POA for the ABC Partnership audit.

So who signs the Form 2848, the LLC manager or its TMP? In this example, the manager of the DEF, LLC, John Sycamore; and not its TMP, Jane Cypress, would be the TMP’s signing official when executing ABC Partnership’s Form 2848 because Jane Cypress is not a manager under state law.

(8) If the TMP is an entity, it is not always easy to identify the authorized signing official. In these situations, the examiner should ask for assistance from his or her TSPC and local Area Counsel.

• Important: A detailed TMP signature help file is available on Partnership Knowledge Base, TEFRA Part II - Examination, Power of Attorney for a TEFRA return.

4.31.2.3.8.3 (04-20-2017)

Partnership is a Withholding Agent for Foreign Withholding

(1) If you are examining the TEFRA partnership for foreign withholding under IRC 1441-1446 or 1471-1474 and are working with a POA, Form 2848 is completed in a unique way. When a TEFRA partnership is the withholding agent, foreign withholding is a partnership level item; however, since the partnership is the withholding agent, it becomes a partner in the partnership proceeding. This differs from normal TEFRA partnership proceedings where the partners, and not the partnership, are the parties to the partnership proceeding.

(2) As a partner subject to the partnership proceeding, the partnership receives a partner level NBAP and is a party in the TEFRA partnership proceeding. If the partnership wishes to appoint a POA to represent the partnership for the foreign withholding issue in addition to TEFRA, the Form 2848 is completed with this in mind.

4.31.2.3.8.3.1 (04-20-2017)

Form 2848, Part I (Foreign Withholding)

(1) Part I of Form 2848 would include the name, address, and TIN of the partnership.

4.31.2.3.8.3.2 (04-20-2017)

Form 2848, Part 3 (Foreign Withholding)

(1) Part 3 should show that the POA is being executed for matters dealing with TEFRA and foreign withholding. It should also list all applicable tax forms and tax years.

(2) Under Description of Matter "TEFRA Partnership Proceeding, Foreign Withholding Tax" should be entered. Enter the appropriate forms under Tax Forms. For example Form 1065, Form 8804 and/or Form 1042. Year(s) or Period(s) should include all applicable years.

4.31.2.3.8.3.3 (04-20-2017)

Form 2848, Part 5(Foreign Withholding)

(1) Part 5a should state that the Form 2848 is authorizing the POA to work with the Service on income and withholding tax. The following statement should be added to 5a: "Including income and/or withholding tax required to be paid and/or withheld at source (under Chapter 3 or 4 of the Internal Revenue Code) due on Form 8804 or Form 1042".

4.31.2.3.8.3.4 (04-20-2017)

Form 2848, Part 7 (Foreign Withholding)

(1) Since this Form 2848 is being executed for both TEFRA and withholding purposes, it should still be executed by the TEFRA partnership’s TMP. Refer to IRM 4.31.2.3.8.2.4, Form 2848, Part 7-Signatory Line (TMP Appoints), for an explanation of how the TMP is to sign.

(2) It is important to note that this section only addresses how a Form 2848 should be executed when a TEFRA entity is a withholding agent and issues exist under IRC 1441-1446 or 1471-1474 .

(1) The following subsections cover key case examination procedures.

(1) A closing conference will be offered whether the key case examination results in an Agreed, Unagreed, or No Change case.

1. A closing conference will be scheduled no earlier than 30 days after the issuance of the Summary Report to the TMP unless waived in writing by the TMP. The Service and the TMP will determine the time and place for all administrative proceedings. (See Treas. Reg. 301.6224(a)-1.)

   Note: For Syndicated Conservation Easement (SCE) partnerships, when there is less than eight months remaining on the partnership statute of limitations, the revenue agent will not be required to offer and hold a closing conference with the taxpayer or representative prior to the issuance of the Notice of Final Partnership Administrative Adjustment (FPAA).

2. Although the TMP may waive the closing conference, if any notice partner requests the closing conference, it will be held. Treas. Reg. 301.6224(b)-1 explains how a partner may waive his or her rights to a closing conference or any other rights granted in the unified audit procedures of a partnership proceeding. The TMP cannot waive the rights of any notice partner.

3. The TMP is required by statute to provide information to notice partners and non-notice partners with respect to the closing conference with the examiner. (Treas. Reg. 301.6223(g)-1(b)(1)(i).) The Service is not required to notify each partner of the closing conference. The results of the proceeding apply to all partners even if the TMP does not provide the required information.

4. The examiner will explain the proposed adjustments in the Summary Report to the TMP and the partners or their representatives who are at the closing conference.

5. The number of partners planning to attend the closing conference must also be conveyed to the examiner.

6. Only those representatives with a valid POA on file for the taxable year(s) under discussion are permitted to participate in the closing conference. (See IRM 4.31.2.3.8, Power of Attorney (POA) for TEFRA Partnerships.)

7. The information presented at the closing conference may require additional examination work, and it may be necessary to hold a second conference. Another Letter 1807, TEFRA Partnership Cover Letter for Summary Report, must be issued if it is determined that a revised Summary Report must be issued.

4.31.2.3.10.1 (04-20-2017)

Powers of Attorney (POA) for Partners in TEFRA Partnerships

(1) When working with taxpayers that are direct or indirect partners in TEFRA partnerships, the examiner will occasionally need to work with a POA at the partner level. This commonly occurs when a partner wants their POA to execute a TEFRA statute extension (e.g., Form 872 or Form 872-A) or sign off on a TEFRA settlement agreement (e.g., Forms 870-PT or 870-LT).

(2) In order for the POA to work with the examiner on TEFRA related matters, the partner level Form 2848 must still comply with the requirements of Treas. Reg. 301.6223(c)-1(e) and should state in some way that the POA is for purposes of subchapter C of chapter 63 of the Code.

(3) Only those representatives with a valid POA on file for the taxable year(s) under discussion are permitted to participate in the closing conference.

(4) The Summary Report transmittal letter (Letter 1807) explains that the POAs must be submitted to the examiner at least 10 days before the closing conference. The original POA should be expeditiously faxed to the CAF unit in the campus.

(5) A new POA for a TEFRA investor does not need to specifically name the TEFRA partnership before the service can deal with the POA for the TEFRA partnership issues. However, it does need to meet specific requirements as explained in the following sections.

(6) Note on the Form 3198, Special Handling Notice for Examination Case Processing, whether any POAs were secured for any partner in the key case. The TSPC will forward all original POAs to the CPF where the partner is linked. A copy will be kept with the key case file.

4.31.2.3.10.1.1 (04-20-2017)

Form 2848, Part 1 (TEFRA Partner POA)

(1) For a partner level POA, Part I, Line 1 of Form 2848 should reflect the partner’s tax information. This includes the partner’s name, address, and TIN. If partner Jane Doe is executing this type of POA, Part I would include Jane’s name and address and Jane’s TIN.

4.31.2.3.10.1.2 (04-20-2017)

Form 2848, Part 3 (TEFRA Partner POA)

(1) Under Description of Matter, "Income, Including TEFRA Partnership Items" should be entered. Under tax forms, the partner’s federal tax from number (1040, 1120, etc.) should be entered as well as Form 1065. Under Year(s) or Period(s) the applicable years should be listed.

(2) The language in Figure 4.31.2-17 above meets the requirements of Treas. Reg. 301.6223(c)-1(e). This means the Form 2848 covers TEFRA as well as income tax. In the Jane Doe example, Part 3 Tax Form Number, would list both Form 1065 and Form 1040.

(3) If the Form 2848 is not completed as above, it will be rejected by the CAF Unit in the campus.

(4) If an existing POA does not have the proper language, a new POA, with the above statement included, should be secured.

4.31.2.3.10.1.3 (04-20-2017)

Form 2848, Part 5 (TEFRA Partner POA)

(1) Though not required, under Part 5a of Form 2848, it is a best practice to list each act the taxpayer authorizes the POA to perform. These would be acts other than the normal authorization to work with the examiner and exchange confidential information.

(2) Care should be taken to identify any restrictions to the POA’s authority to act for the taxpayer under Part 5b.

4.31.2.3.10.1.4 (04-20-2017)

Form 2848, Part 7 (TEFRA Partner POA)

(1) Form 2848 should reflect the partner’s signature and printed name.

(1) Consider the impact of an agreement on all other partners in view of their right to consistent settlement.

(2) The examiner may solicit agreements as part of the closing conference. Be sure to verify that there are no report writing errors. Once an agreement is executed, the Service is bound to the adjustments shown on the Schedule of Adjustments.

(3) A TMP agreement will only be solicited when there are non-notice partners. When the TMP is a notice partner, an agreement will be solicited from the TMP in the TMP's capacity as a notice partner only.

(4) The notice partners and/or their representatives (See IRM 4.31.2.3.10, Closing Conference, for proper completion of the POA form) who are at the closing conference should be offered an opportunity to enter into a settlement with the Service by signing:

1. Form 870-PT, Agreement for Partnership Items and Partnership Level Determinations as to Penalties, Additions to Tax, and Additional Amounts. This agreement form allows the partner to agree to adjustments proposed to partnership items. Penalties are determined at the partnership level for partnership tax years ending after 8/5/1997. Use this agreement if proposing adjustments to partnership items and not to affected items.

2. Form 870-LT, Agreement for Partnership Items and Partnership Level Determinations as to Penalties, Additions to Tax, and Additional Amounts and Agreement for Affected Items. This form permits the partner to agree to both partnership adjustments and affected items or only partnership adjustments. This form has two parts. Part I of the Form 870-LT is identical to the Form 870-PT. By signing this part of the form, the partner is agreeing to the partnership item adjustments (and penalties) as stated in the schedule of adjustments attached to the Form 870-LT. These penalties include negligence (IRC 6662(b)(1)), and substantial understatement of income tax (IRC 6662(b)(2))), and overvaluation (IRC 6662(b)(3)). Part II of the Form 870-LT allows the partner to agree to partner level determinations for affected items and the related penalties, additions to tax as well as to the assessment of the tax, penalties, and interest due without following the normal deficiency proceedings (30 day letter or statutory notice).

   Note: Penalties determined at the partnership level must be directly assessed and are not subject to deficiency procedures, even when the underlying deficiency upon which they are based is subject to deficiency procedures.

3. Brackets are placed around dollar amounts when an adjustment is in the taxpayer's favor, e.g., an increase in income is shown as a positive number and a reduction of income is in brackets, as opposed to an increase in expenses in brackets and a decrease reflected as a positive number.

4. Each notice partner (and spouse if they filed jointly), including the TMP in his or her capacity as a partner in the partnership, must individually sign a Form 870-PT or Form 870-LT. The TMP is only authorized to bind the non-notice partners if specific language is added. (See (4) below.) Verify that all agreements are signed properly and in the proper signing format including title of signing authority, as applicable. See Exhibit 4.31.2-4 for further detail on who must sign agreements.

5. If a pass-through partner enters into a partnership item settlement agreement with the Service, that agreement binds all indirect partners holding an interest in that partnership through the pass-through partner except those indirect partners that have been identified in accordance with Treas. Reg. 301.6223(c)-1. Indirect partners identified at least 30 days prior to the date the agreement is entered into are entitled to their own settlement agreement and are not bound by a pass-through partner settlement agreement.

6. A pass-through partner (i.e., a tier) cannot sign Part 2 of Form 870-LT agreeing to affected items since a pass-through partner cannot bind its underlying investors. Only the ultimate taxpayers can agree to affected items.

(5) According to IRC 6224(c)(3), a partner who is a non-notice partner, i.e., a partner who has a less than one percent interest in profits of a partnership with more than 100 partners (and not a member of a notice group), is bound by any settlement agreement that is entered into by the TMP, and in which the TMP agreement expressly states that such agreement will bind the other partners.

1. The following statement must be inserted by the examiner or reviewer immediately preceding the signature line on the Form 870-PT for the TMP who executes an agreement intending to bind non-notice partners: "The undersigned Tax Matters Partner is signing this offer on behalf of himself (herself) (itself) and all other partners whom he (she) (it) has the authority to bind; under section IRC 6224(c)(3) ; a final agreement resulting from the signature of the Commissioner of Internal Revenue will be binding on all such other partners".

2. The TMP cannot bind the non-notice partners for any affected items or the related penalties (except for penalties attributable to partnership items) when partner level factual development is required. Therefore, Form 870-PT, not Form 870-LT should be presented to the TMP. If the TMP erroneously signs Part II of the Form 870-LT, the error will not invalidate the agreement for partnership items and partnership level determination of penalties. However, in both cases the Campus Pass-Through Function must subsequently issue a 30 day letter or statutory notice to the non-notice partners for these items.

3. The TMP may not bind a non-notice partner if the non-notice partner has affirmatively notified the Service that the TMP is not authorized to act on his or her behalf pursuant to Treas. Reg. 301.6224(c)-1(c).

4. Whenever a key case examiner secures a Form 870-PT or Form 870-LT at the closing conference, the case must be closed out of the group within 15 days of the closing conference.

5. A pass-through partner cannot bind its underlying investors by signing Part II of a Form 870-LT. Each taxable partner must be issued a statutory notice of deficiency individually. A pass-through partner agreeing to Part I does bind all partners to partnership item adjustments and penalties determined at the partnership level.

6. If agreements are not received at the closing conference, the field examiner will suspense the closing of the key case for no more than 30 days to allow the investors time to return their agreements. At that time, the key case will be closed. The appropriate statement must be added to the Form 3198. See IRM 4.31.2.3.14, Closing the Key Case.

7. If agreements are signed prior to the issuance of the 60 day letter, then the 6404(g) date will be the counter signature date.

(6) Actions taken should be documented in the work papers.

(1) Some partnerships request to settle and pay tax deficiencies on behalf of their partners. When such a request is made, you should consult with your TSPC, local counsel and the CPF. A referral on the Specialist Referral System should be made if one has not already been submitted. It is important the TSPC be involved early in the process to ensure all reports are correctly prepared and local Area Counsel has been involved in the preparation of the Form 906. This will also ensure timely case closure from the exam group through Technical Services.

(2) It is legally permissible to have the key case partnership or pass-through partners pay tax on the net adjustments passing through it at the highest marginal tax rather than passing the adjustments to the hundreds of direct and indirect partners. The partnership or pass-through partner must sign a Form 906, Closing Agreement On Final Determination Covering Specific Matters, and full pay the amount due. The agreement will provide that each partner’s share of the increased partnership income will increase that partner’s capital account and outside basis. The payments will be treated as proportionate distributions to all partners in the year the actual payment is made. The distributions will reduce the partner capital accounts and outside basis. A partner who was a partner in the year under audit and not a partner in the year the tax is paid is generally not affected. Economically, this will put both the partners and the Service in the same position as if the Campus passed through all of the adjustments and the partners had paid the assessments individually.

(3) Generally, these rules apply when there is a deficiency. However, all options should be explored if the partnership structure is very large.

(4) Settlement by the key case partnership or a pass-through partner is not the norm. Local Area Counsel must be involved in the initial stages and local Area Counsel must be involved up-front in the drafting of the Form 906. The purpose of the settlement is efficiency and ease of processing. As a result, the Field will be responsible for assisting with requests to settle TEFRA adjustments which are outside of the normal process.

(5) The details of a partnership level settlement are explained in a Form 906, Closing Agreement on Final Determination Covering Specific Matters. A partnership level agreement can only be secured when the adjustments passing through to all underlying partners will result in a deficiency. If any partner is subject to a refund, then a partnership level agreement cannot be secured. All partners must be adjusted individually.

(6) The highest effective tax rate should be used when calculating the amount of tax owed. The partnership must also pay all additions to tax including interest and penalties.

(7) The Form 906 should be executed by the DFO for LB&I or Technical Service Manager for SBSE before sending a copy to the CPF.

(8) The payment made by the partnership is considered a distribution to the partners of record in the year paid, or the year when the payment became fixed and determinable. A partnership's payment of IRC 1446 tax on behalf of a foreign partner is treated as a deemed distribution of money to the partner on the earliest of: the day on which the partnership paid the tax; the last day of the partnership's taxable year for which the amount was paid; or the last day on which the partner owned an interest in the partnership during the taxable year for which the tax was paid. However, a deemed distribution of money under IRC 1446(d) resulting from a partnership's installment payment of IRC 1446 tax on behalf of a partner is treated as an advance or drawing of money under Treas. Reg. 1.731-1(a)(1)(ii) to the extent of the partner's distributive share of income for the partnership taxable year. The rule treating a deemed distribution as an advance or drawing of money under this paragraph (d)(2)(v) applies only for purposes of IRC 6655 (as applied through this section) or the date a foreign partner is deemed to have paid estimated tax by reason of such installment payment. See Treas. Reg. 1.1446-3(d)(2)(v).

(9) The impact of the payment as a distribution to the partners should be included in the Form 906 settlement agreement.

(10) The payment made by the partnership will impact the basis of all partners of record at year end. The partners' capital accounts and basis should be increased by the amount of income that should have been reported, and then reduce it by their share of the tax paid by their partnership. That share is treated as a distribution in the year paid and will generate additional tax to the extent it exceeds the partner's outside basis or increases income (by reducing basis) on the sale of his partnership interest. Please see IRM 4.31.2.3.19, Foreign Withholding Tax, for specific rules for the partnership's payment of IRC 1446 tax.

(1) After the closing conference, if the TMP or any notice partner did not agree, the examiner will prepare an unagreed Revenue Agent Report (RAR) in the format prescribed in IRM 4.10.8, Examination of Returns, Report Writing. If penalties are proposed, the procedures in IRM 20.1, Penalty Handbook, will be followed. The report writing procedures for penalties are also in IRM 4.10.8, Examination of Returns, Report Writing.

(2) The unagreed RAR will incorporate the taxpayer's position. If agreed or no changed, the Summary Report may be substituted for the RAR. A Form 4665, Report Transmittal, must be used as the transmittal for all RARs.

(3) Any alternative positions that should be considered in the event of an Appeal, should be included on a Form 886-A. The alternative positions should not be included in the summary report or reflected on the Form 4605-A.

(4) There must be 600 days (twenty months) on the key case partnership statute before closing an unagreed case to Tech Services for the issuance of a 60 day letter. If there are less than twenty months but at least eight months the case can be closed to Tech Services for issuance of an FPAA. If there are less than eight months see IRM 4.31.2.3.14.1, Imminent Statute Procedures.

(1) The examiner will forward the key case file to Technical Services in status 21. A Form 3198, Special Handling Notice for Examination Case Processing, will be attached to the front of the key case and the appropriate statements added. Technical Services will prepare and mail out all closing letters to the TMP. Letter 1807 and a copy of the summary report should be included for all cases except no changes within 45 days.

1. TEFRA key cases are mandatory review. The "TEFRA or ILSC Key Case" block under "Forward to Technical Services" will be checked and the criteria in IRM 4.8.4, Mandatory Review, will be followed.

2. If the TEFRA key case is No Changed, the "Other" block under the "Forward to Tech Services" section will be marked and one of the following applicable statements will be made:

No Change Remark for Form 3198
TEFRA No Change Determination Made Within 45 Calendar Days TEFRA No Change after 45 Calendar Days

3. If the TEFRA key case is unagreed, no partners signed Form 870-PT or Form 870-LT, the "Other" block under the "Forward to Tech Services" section will be marked, and the applicable statement "TEFRA Key Case File, Issue 60 Day Letter" or "TEFRA Key Case File, Issue 150-Day Letter (FPAA)" will be added.

   Note: The examiner should recommend the FPAA when there are fewer than twenty months left on the statute and the taxpayer will not extend the statute.

4. If the TEFRA key case is agreed and a Form 870-PT or Form 870-LT is included in the file, state in the "Other" block "Agreed TEFRA Key Case File, Unexecuted partner Agreements Enclosed". Verify that the signatures are correct. If the signature language is incomplete, the agreements will not be executed. Rejected agreements will be returned to the group.

5. If the TEFRA key case is unagreed but one or more partners have signed a Form 870-PT or Form 870-LT, state in the Other block either:

Explanation for Form 3198, Other Box
TEFRA Key Case File, 60 Day Letter, and unexecuted partner agreements enclosed, route to the Technical Services. TEFRA Key Case File, Issue FPAA, and unexecuted partner agreements enclosed, route to the Technical Services.

6. The TMP is required to notify the partners or shareholders and all notice group representatives with respect to any appeal, court action, or other matter listed in Treas. Reg. 301.6223(g)-1(b)(1).The requirement does not apply to those partners whose partnership items have become nonpartnership items, e.g., have executed Form 870-PT or Form 870-LT

7. The Service must notify the TMP of the partners who have agreed. A list of the partners who executed the Form 870-PT or Form 870-LT will be sent to the TMP by the examiner if the examiner secured the agreements, or the Campus Pass-Through Function when they receive the agreements. Copies of the signed Form 870-PT or Form 870-LT will not be furnished to the TMP. See Treas. Reg. 301.6223(g)-1(b)(2) for other partners excepted from the notification requirements.

8. Update the disposal code on the Form 3198 and ERCS to the following when closing the key case:

Disposal Codes for Form 3198

No-change after 45 days - Disposal Code 02 - Use for TEFRA partnerships closed either before or after the 45 day period where the tax return and K-1s are all accepted as reported. Agreed - Disposal Code 03 applies to an agreed case that will result in partner adjustments and an agreement is obtained from all partners, or an agreement from the partnership which binds all partners. Appealed - Disposal Code 07 - Returns forwarded to Technical Services where the TMP or a notice partner has requested an appeal before issuance of the FPAA. Other - Use Disposal Code 08 when all of the partners did not sign a report and those partners who did not sign a report did not request an Appeals conference.

Note: Disposal Code 01 does not apply to TEFRA

(2) Statutory notice language is provided by the examiner for every case along with the Form 4665, Report Transmittal, of the key case. It is the responsibility of the TSPC for the key case to further develop this language. Concurrence by the key case Area Counsel is mandatory.

(1) An affected item is any item to the extent such item is affected by a partnership item under IRC 6231(a)(5).

(2) Court decisions have caused the Service's position on some issues to evolve. Certain sub-determinations, i.e., entity and investor components, are required for passive loss, at-risk, and basis issues. Determinations at the key case level and the investor level are required. Generally, all entity and investor component determinations must be made by the key case examiner.

(3) Often, the determination of which of the components of basis are partnership or affected items is unclear. In those complex situations, the TSPC or Area Counsel should be consulted when affected items involving entity components and investor components are an issue (or are issues) in the case.

(4) The following is a discussion of the proper classification of partnership items, affected items, and nonpartnership items as well as the proper audit procedures necessary to make adjustments to a partner's return.

(5) Certain affected items are computational adjustments, such as any percentage limitation based on adjusted gross income. If the changes to the partnership items change adjusted gross income, items such as medical itemized deductions will be adjusted. If a net operating loss of a partner was reduced, it would be a computational adjustment to change the net operating loss deduction in a carryback or carryforward year. Since they are computational, no factual development is required by the key case examiner.

(6) Other affected items are subject to deficiency proceedings. Either a 30 day or 90 day letter will be issued to allow facts to be developed at the partner level. For example, whether or not a partnership has cancellation of debt income is a partnership item. Once that is determined, the partner's income will be adjusted for their share of the cancellation of debt income via a 30/90 day letter. This will allow the partner to raise any facts which would allow them to exclude this income under IRC 108, for example, because they are insolvent.

(7) In cases where a TEFRA key case has pass-through partners that are also TEFRA entities, noncomputational affected items may require a partnership proceeding at the TEFRA tier partnership. If the campus controls the tier partnership, AIMS controls must be requested from the campus. Consult with Counsel if there are noncomputational affected items flowing from the key TEFRA partnership to the TEFRA tier partnership, when the TEFRA tier partnership is unagreed. An FPAA will need to be issued to the tier partner if facts are required at the TEFRA tier partnership level to determine the amount or nature of a noncomputational affected item. Care needs to be taken when an FPAA is used at the tier level for affected items. As a general rule only one FPAA may be issued to a TEFRA partnership as a key case. An FPAA must include any affected items that require additional determinations at the TEFRA tier partnership level, as well as, any adjustments that are sourced from that TEFRA tier partnership. Remember that the FPAA an investor receives is a copy of the key case partnership FPAA and is not a partnership FPAA in its own right. An investor may receive copies of many FPAAs if they are directly invested in multiple TEFRA partnerships that are being examined.

(8) Treas. Reg. 301.6231(a)(5)-1(b) and (c) provide that a partner's basis and at-risk amounts are considered affected items to the extent that they are not partnership items. While this may suggest that the overall issue of the correct amount of a partner's basis or at-risk can be a partnership item, case law has indicated that these overall determinations will always be affected item determinations.

(9) For example, the amount of a partner's initial contribution to capital would be a fact developed at the partnership level, that would be the partnership item, but the utilization of that amount in the computation of basis and any disallowance of a loss at the partner level would be the affected item subject to deficiency procedures (30 day or 90 day letter).

(10) In a TEFRA examination, most of the component items of overall basis, at-risk, and passive loss determinations are more appropriately determined at the partnership level. If any of these component items are changed during a TEFRA examination they must of course be included in the examiner's TEFRA entity Summary Report. However, if the overall change to a partner's basis, at-risk amount or passive loss limitation is proposed, all partnership level components of such determinations can be included in the TEFRA Summary Report even if they are not being adjusted. While inclusion of such unchanged components in the TEFRA entity Summary Report is not required, it may be a good idea to include them in order to foreclose any later arguments by the taxpayer that such components are incorrectly stated in the partnership return.

(11) The adjustments for affected items will be computed after the conclusion of the partnership proceeding. The proceeding is concluded for each partner by:

• the partner agreeing to adjustments proposed in the Summary Report;

• the partner agreeing to an appeals settlement;

• a final determination of the court; or

• a defaulted FPAA.

(12) The following outlines some of the partnership and partner level components that the revenue agent should look for during the examination of the partnership. In general the partnership components would be partnership items included in the partnership proceeding. The partner level components would be affected items and would be decided at the end of the partnership proceeding either through computational adjustments Letter 4735, Notice of Computational Adjustment, or by the issuance of a 30/90 day letter.

(1) In General:

1. Changes made to partnership components should be contained on Form 4605-A, Examination Changes - Partnerships, Fiduciaries, S Corporations, and interest Charge Domestic International Sales Corporations, Form 886-A, Explanation of Items, and Form 886-Z, TEFRA Partners’ Shares of Income, or equivalent spreadsheet. For example, if distributions and contributions are changed from the information reported on Schedule M-1, the adjustment should be listed under other adjustments” on the Form 4605-A and the correct allocation of these items should be shown on the Form 886-Z (or equivalent spreadsheet). If the item is a reclassification of a general partner to a limited partner, some adjustments, such as reallocations of distributive shares, or changing the characterization of a partner from general partner to limited, cannot easily be shown on the Form 4605-A. Utilize the Form 886-A to describe this adjustment. Reference the Form 886-A in the remarks section of the Form 4605-A as an attachment.

2. Form 886-A should be prepared for any item, which has been changed or reclassified. Even when changes are not made to these items, they still constitute components of an overall partner level adjustment and may be included in the TEFRA Summary Report if an adjustment at the partner level is proposed to basis, at-risk, or passive loss limitations.

3. If any adjusted partnership components are not included in the TEFRA entity Summary Report and are then not included in the FPAA and the partner's case is argued in court, the issue may have to be conceded if the disallowance of a partner's loss relies on:

Disallowance of a partner’s loss relies on:
a change to a distribution; a change to a contribution; a reclassification of a general to a limited partner; or some other partnership level component.

4. If the overall partner level adjustment contained in the Affected Items Report consists only of computational changes to the partnership level components, such partner level adjustment may be made as a computational adjustment. If such overall partner level adjustment requires a partner level determination (i.e., that the partner did not materially participate for purposes of IRC 469), the deficiency procedures of subchapter B of chapter 63 will apply and an Affected Item 30 day letter or Affected Item 90 day letter will be required. If penalties are determined to apply at the partner level as related to the affected item, the application of the penalty must be clearly stated on the Form 886-A. Partner level penalties will need to be assessed on the Affected Item 30 day letter or Affected Item 90 day letter and not by computational adjustment.

(1) The following subsections pertain to certain conversions involving partnerships.

(1) If a partnership, whether domestic or foreign, that is required to file a return under IRC 6031:

1. Fails to file a return; and

2. At any time after the close of that taxable year, either the TMP resides outside the United States or the books and records of the partnership are maintained outside the United States, then the Service may:

TMP resides or Books and Records maintained outside the United States

Mail a notice to the partner to advise him or her that the losses and credits arising from that partnership for that year will be disallowed to that partner, unless the partnership files a return within 60 days after the date on which the notice is mailed; and If a partnership return is not subsequently filed, mail a Letter 4735, Notice of Computational Adjustment, to that partner to reflect the disallowance of any loss (including a capital loss) or credit arising from that partnership for that year, without conducting a partnership level proceeding.

(2) According to Treas. Reg. 301.6231(f)-1(d), if the person to whom the notice was mailed establishes to the satisfaction of the Service that the losses and credits arising from the partnership for the year are proper, and that the partner has made a good faith effort to have the partnership file the required return, then the Service may allow the losses and credits, in whole or in part.

(1) An entity that is treated as a partnership for US tax purposes and has a foreign partner could be required to withhold tax under two separate withholding tax regimes (i.e., IRC 1441, IRC 1442 - Fixed Determinable Annual Periodical (FDAP) and IRC 1446 - Effectively Connected Taxable Income (ECTI). Beginning in tax year 2014, a partnership may also be required to withhold under FATCA (IRC 1471-1474) on withholdable payments that are allocable to foreign partners or are made to certain foreign entities.

(2) The withholding tax regime under IRC 1441, IRC 1442 and 1471-1474 requires:

1. A domestic partnership to withhold tax on a foreign partner’s allocable share of U.S. source Fixed Determinable Annual Periodical (FDAP) income or on a withholdable payment allocable to a foreign partner to end of sentence. .

2. Additionally, IRC 1441, IRC 1442 and 1471-1474 require withholding any time a partnership makes a payment of FDAP income to a nonresident alien or foreign corporation regardless of whether this person is a partner in the partnership making the payment, or if a partnership makes a withholdable payment to a foreign entity regardless of whether the entity is a partner in the partnership making the payment.

(3) The withholding tax regime under IRC 1446 requires any partnership engaged in a trade or business within the U.S. to withhold tax on a foreign partner’s allocable share of effectively connected taxable income (ECTI).

(4) Partnerships should also be aware of possible withholding obligations under IRC 1443 (regarding effectively connected income allocable to Sec. 501(c) foreign tax exempt organizations) and IRC 1445 (regarding gain from the disposition of a US Real Property Interest when a portion of the gain is allocable to a foreign partner). See Treas. Reg. 1.1446-3(c). The partnership may have a separate withholding obligation under IRC 1445 as a transferee of a U.S. Real Property Interest.

(5) Taxes withheld on a foreign partner’s income under IRC 1441, IRC 1442, IRC 1446 and 1471-1474 are considered Partnership items. An examination of a TEFRA partnership with respect to these withholding tax sections is subject to the TEFRA partnership procedures. IRC 6231(a) (3); Treas. Reg. 301.6231(a) (3)-1(a) (1) (v).

(6) This section provides examination procedures and instructions for securing statute extensions for TEFRA partnerships that are required to withhold taxes with respect to IRC 1441-1446 and 1471-1474, case closing procedures and overall coordination of TEFRA Key Cases with withholding tax return cases. The relevant withholding tax return forms are Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, and Form 8804, Annual Return for Partnership Withholding Tax (Section 1446).

(1) This election allows the electing entity to no longer follow the provisions of Subchapter K of the IRC.

(1) The date on which the partnership taxable year commences is considered the date it is formed.

1. A partnership is formed, for federal income tax purposes, when the parties to a venture join together capital and services with the intent of presently conducting an enterprise or business for profit.

2. The solicitation of capital from prospective partners does not create a partnership.

(2) The formation date of the partnership may be determined by:

1. Examining the partnership agreement;

2. Examining the prospectus; or

3. Ascertaining the effective date of the certificate of limited partnership.

(1) A pass-through entity as defined by IRC 6231(a)(9) and Treas. Reg. 301.6231(a)(1)-1(a)(2) includes, but is not limited to, the following:

1. A partnership, which has not elected to be classified as a corporation per Treas. Reg. 301.7701-3 (effective January 1, 1997);

2. An S corporation;

3. A business entity which is not a trust or corporation may be treated as a partnership or corporation (if as a corporation, an S corporation election may be made);

4. A joint venture;

5. A similar type entity; REMICS (real estate mortgage investment conduit) and LLCs (limited liability company) are examples;

6. An LLC, which has more than one member and has not elected to be classified as a corporation under Treas. Reg. 301.7701-3 (effective January 1, 1997);

7. a disregarded entity (See Rev. Rul. 2004-88);

8. a nominee; or

9. other similar person through whom other persons hold an interest in the partnership.

(2) A pass-through entity:

1. May not file a tax return or even be required to file a return (i.e., a Schedule C or F syndication or promotion reported directly on each investor's Form 1040); and

2. In general, has no tax liability for itself, but passes the tax consequences to its partners, shareholders, beneficiaries, or investors.

(1) The TMP is a position created as a result of the TEFRA statutes. The TMP is the general partner designated by a partnership (subject to TEFRA procedures) to represent the partners before the Service in all tax matters for a specific taxable year. (Treas. Reg. 301.6231(a)(7)-1.)

1. If no general partner is so designated, either on the partnership return as filed, subsequent to the filing of the partnership return, or at the request of the Service at the time the examination is started, then the general partner with the largest profits interest in the partnership at the close of the taxable year is the TMP.

2. In some cases, the Service can select the TMP.

3. In either case, the TMP must have a profits or capital interest in the partnership. General partners or member managers with 0% profits or capital interest are not eligible to be TMP. In the event, the TMP does not have profit or capital interest the examiner should contact Area Counsel.

(2) In addition to facilitating administrative proceedings, the TMP has the authority to:

1. Extend the statutory period for assessment of tax for all partners of the partnership. (See IRM 4.31.2.5.4, Persons Empowered to Sign a Consent.);

2. Choose the forum for judicial review of adjustments to partnership items; and

3. Enter into an agreement, in certain situations, that may be binding for certain partners who, under IRC 6223, are not entitled to a notice of administrative proceedings (non-notice partners). (See IRM 4.31.2.3.11, Securing Agreements from the TMP and the Partners.)

(1) According to Treas. Reg. 301.6231(a)(7)-1(b), the person (or entity) designated as the TMP by the partnership must be:

1. A general partner in the partnership at some time during the taxable year for which the designation is made; or

2. A general partner in the partnership at the time the designation is made. (See the table of questions in (2) below to determine what qualifies someone to be the TMP.)

(2) Qualification of TMP. The designated TMP need not be an individual: the TMP may be an entity, i.e., an estate, trust (even a grantor trust), partnership, LLC, S corporation or C corporation. Use Form 13828, to make the determination of qualification. However, the TMP must meet all of the following requirements.

1. In a partnership, the TMP must be a general partner.

2. In an LLC, the TMP must be both a member and a manager pursuant to Treasury Reg. 301.6231(a)(7)-2 unless there are no member managers. If there are no member managers, a member may be designated as the TMP.

3. The TMP cannot be in bankruptcy.

4. If the TMP is an entity, it must be a going concern, i.e., it cannot have dissolved or liquidated.

5. The TMP cannot have any of the following circumstances apply:

1. Be under an IRS criminal investigation and have been sent a notice of our intent to convert their partnership items to non-partnership items.

2. Have asked for a prompt assessment.

3. Have an indirect method used to determine income on the TMP’s return and having a notice of deficiency issued based on the indirect method.

4. Have been issued a termination or a jeopardy assessment.

(3) The partnership must select a general partner as the TMP for a specified taxable period. If the partnership designates a TMP for the partnership who is not a general partner, that partner cannot be the TMP. Letter 2700, Designation of Tax Matters Partner Request, and related Form 13827, Tax Matters Partner (TMP) Designation Check Sheet, are used to request that the partnership designate a new TMP.

(4) Personal liability for partnership debts distinguishes a general partner from a limited partner.

1. Whether a partner with no profit, loss, or capital interest in the partnership may be considered a general partner, and thus, eligible to be designated as a TMP, may be governed by state law. (e.g., property interest and agency issues). Generally, status as a partner is governed by Federal law.

2. Questions involving state law should be directed to Area Counsel.

(5) If a partner, who is the TMP (designated by the partnership or selected by the Service), sells his or her interest in the partnership and does not resign as TMP, the partner remains as the TMP for that taxable year if the partner meets all other requirements of the regulations.

1. If this tax year is subsequently examined, the partner who sold his or her interest may represent the partnership as the TMP.

2. Under the Largest Profits Interest Rule, the partner remains the TMP for the year even if the partner's interest is later sold. If the interest was sold before year end, the partner would not be eligible to be TMP.

(6) If an entity is a general partner and is the designated TMP, the person representing the entity TMP is determined under State law. The examiner should determine if the appointed person has the authority to bind the entity TMP. For example, if the entity TMP is a C corporation, an officer of the C corporation can generally bind the corporation.

(7) The partners can designate any United States general partner as the TMP. They cannot designate a non-United States person without the Service's consent if any United States person is eligible. However, when the only general partner is not a United States person (as defined by IRC 7701(a)(30)), this general partner automatically becomes the TMP under the Largest Profits Interest Rule. (Treas. Reg. 301.6231(a)(7)-1(b)(2).)

(8) Generally, the LLC statutes in the various states allow an LLC to choose management by one or more managers (whether or not members) or by all of the members. The TMP of an LLC classified as a partnership must be a member-manager as defined in Treas. Reg. 301.6231(a)(7)-2(b)(3). Letter 2700-L, Designation of Tax Matters Partner Request-LLC, and related Form 13798-L, Limited Liability Tax Matters Partner Designation Form, are used to request that the LLC designate a new TMP.

(9) If none of the managers of the LLC are members (i.e., owners), all of the members will be treated as if they are member-managers. The member-managers are treated as general partners, and the members of an LLC that are not member-managers are treated as partners other than general partners. Any member-manager may be designated as the TMP of the LLC if he/she otherwise meets the qualifications of Treas. Reg. 301.6231(a)(7)-1.

(10) If the LLC chose one or more members as managers and the status of all of the selected members has terminated because Treas. Reg. 301.6231(a)(7)-1(l)(i) through (v) applies, the Service may designate a member as the TMP in accordance with Treas. Reg. 301.6231(a)(7)-1(p).

(11) When an LLC is the TMP of a key case partnership, the LLC manager under state law acts as TMP, not the LLC's own TMP. Per Rev. Rul. 2004-88, if the pass-through partner "is a limited liability company, then a manager of the LLC, under State law, must sign, regardless of whether the LLC is subject to the TEFRA partnership procedures".

(1) On a Form 1065, U.S. Return of Partnership Income, Schedule B, the partnership may designate the TMP.

(2) The partnership is not bound by the Largest Profits Interest Rule that applies to the selection of a TMP after the return is filed.

1. The examiner should ask whether partnership procedures for making a qualified designation were followed, and

2. Whether any events may have transpired to disqualify the TMP, such as, terminations, resignations, subsequent designations, or revocations.

(1) If the partnership did not designate a TMP at the time the partnership return was filed:

1. Treas. Reg. 301.6231(a)(7)-1(e) states that the partnership may designate a TMP after the partnership return is filed by filing a statement with the campus with which the partnership return was filed.

2. The statement will:

(2) Letter 2700 and related Form 13798 are used to request that the partnership designate a new TMP. Similarly, Letter 2700-L and related Form 13798-L are used to request that the LLC designate a new TMP. The partnership should file a duplicate original copy of the designation form at the campus where it filed its returns in accordance with the Regulations. The agent should send a copy to the Campus TEFRA/Pass-Through Coordinator to ensure the campus is aware of the TMP change.

(3) According to Treas. Reg. 301.6231(a)(7)-1(f), a TMP may be designated after the return is filed by persons who hold more than 50 percent of the aggregate interest in the partnership profits held by all general partners at the end of the taxable year, if each general partner at the end of the taxable year is described in one or more of the following events:

1. Is deceased, or, if the general partner is an entity, was liquidated or dissolved;

2. Was determined by a court to be incapable of handling his or her affairs;

3. Had his/her partnership items converted to nonpartnership items, under conditions outlined in IRC 6231(b); or

4. Is no longer a partner in the partnership.

   Note: Under these circumstances, the TMP designated by the partnership must be a general partner at the time of the designation. (See IRM 4.31.2.4.4, Designation of TMP After Partnership Return is Filed.)

(4) Limited partners may only select a general partner as the TMP. For example, a new general partner may join the partnership in a subsequent tax year. The limited partners could select the new general partner as the TMP for the years under examination but could not select a limited partner. Furthermore, if a general partner's partnership items converted to nonpartnership items other than under special enforcement regulations of IRC 6231(c), the partner remains eligible to be designated as TMP.

(5) The regulations require that the designation be filed directly with the campus where the partnership return was filed, even if an NBAP was issued, not with the revenue agent.

1. The agent should request a copy of the designation either from the campus or the entity.

2. The copy of the designation secured by the agent will be attached to the back of the first page of the partnership return.

(1) If a properly designated TMP for a partnership taxable year certifies that another partner was selected as the TMP for that taxable year, the successor partner is considered the designated TMP for that year. The certification is filed with the campus where the partnership return was filed. (Treas. Reg. 301.6231(a)(7)-1(d).)

(2) The regulations require that the designation be filed directly with the campus where the partnership return was filed, not through the revenue agent, even if an NBAP was issued.

1. The agent should request a copy of the designation from either the campus or the entity.

2. The copy of the designation secured by the agent will be attached to the back of the first page of the partnership return.

(1) If an individual (not an entity) is designated as the TMP at the time the return is filed, after the return is filed, or as a successor TMP, then an alternate TMP may also be designated when the statement is filed.

(2) The person designated as the alternate TMP will become the TMP at the time the designation is terminated by death or the adjudicated incompetency of the TMP.

(1) If a person is certified as a successor TMP or is designated as the TMP under the procedures for general partners with a majority of interests, the certification or designation supersedes all prior designations for that year.

(2) The above certification or designation for that year also supersedes a prior designation as the alternate TMP. (Treas. Reg. 301.6231(a)(7)-1(h).)

(1) A person designated as the TMP may resign at any time by filing a signed written statement with the campus where the partnership return was filed. The examiner should request a copy from the campus or the entity. (Treas. Reg. 301.6231(a)(7)-1(i).)

(2) If a TMP resigns but had previously signed a consent to extend the statute of limitations for the partnership, that extension remains valid (if co-executed by the Service before the resignation) even after termination of the designation. (Treas. Reg. 301.6231(a)(7)-1(e)(2))

(1) The partnership may revoke the designation of a TMP at any time after the filing of a partnership return by filing a statement with the campus where the return was filed. The examiner should request a copy from the campus or the entity.

(2) The statement must be signed by the same persons who are permitted to designate a TMP. (Treas. Reg. 301.6231(a)(7)-1(e) or (f))

(1) The designation of a TMP remains in effect until:

1. The death of the designated TMP;

2. An adjudication by a court of competent jurisdiction that the individual designated as the TMP is no longer capable of managing the person or estate;

3. The liquidation or dissolution of the TMP, if the TMP is an entity;

4. The partnership items of the TMP become nonpartnership items under IRC 6231(c), relating to special enforcement areas;

5. The day on which the resignation of the TMP becomes effective;

6. The day on which a subsequent designation as a successor TMP, a designation by general partners with a majority of interests, or a designation by partners with a majority of interests under certain circumstances becomes effective; or

7. The day on which a revocation of the designation becomes effective.

(2) The termination of the designation of a partner as the TMP does not affect the validity of any action taken before the day on which the designation is terminated. For example, if that TMP had previously consented to an extension of the period for assessments under IRC 6229(b)(1)(B), that extension remains valid (if co-executed by the Service before the resignation) even after termination of the designation.

(3) The designation of the TMP is not terminated by the TMP signing an agreement with respect to the partnership items, and the TMP may continue to represent the partnership until the proceedings are complete.

(4) Special enforcement activities under IRC 6231(c) that terminate a designation include, but are not limited to:

1. Being notified of an investigation by Criminal Investigation and being notified in writing that the partnership items are being treated as nonpartnership items as a result of the criminal investigation; (Treas. Reg. 301.6231(c)-5);

2. Being assessed income tax under IRC 6851 (relating to termination assessments), or IRC 6861 (relating to jeopardy assessments)

3. A request for prompt assessment under IRC 6501(d);

4. Being named a debtor in a bankruptcy proceeding (see discussion in Computer Programs Lambda, Ltd. v. Commissioner, 89 TC 198 (1987));

5. Having a receiver appointed in a receivership hearing; or

6. Mailing of a deficiency notice based upon an indirect method of proof of income.

(5) If the TMP's individual return is examined and unreported income is identified, by using an indirect method of proof, and a notice of deficiency is mailed to the TMP, as of the date the notice is mailed, the TMP's designation is terminated. Thus, whenever an examiner is performing an examination on a partner return that is linked to a TEFRA key case and the above situation arises, the examiner should contact the key case examiner to coordinate the closing of the case. (Treas. Reg. 301.6231(c)-6)

(6) If the Service determines that the TMP should be removed because of special enforcement activities, there are circumstances where it may not be possible to disclose the reason for such removal to the partners, as this may be an unauthorized disclosure of the TMP's return information; for instance, removal as a result of a criminal investigation. In these circumstances, it should be sufficient for the Service to indicate to the partners that the TMP has been removed pursuant to IRC 6231(c) and the regulations thereunder.

(7) If the TMP, who is an individual, is under joint investigation, this does not remove the partnership from the TEFRA proceedings.

1. A new TMP may be designated by the partnership or the Service.

2. If there are no remaining partners, general or limited, or the TMP refuses to execute the necessary notices and/or documents to continue the proceedings, the Service may issue the FPAA or take other appropriate legal action.

   Note: If a claim is filed in a bankruptcy proceeding by a TMP that is a pass-through entity, the items convert under Treas. Reg. 301.6231(c)-7 and its status as TMP terminates under 301.6231(a)(7)-1(L). But its indirect partners stay in the TEFRA proceeding under Third Dividend Dardanos v. Commissioner, 88 F.3d 821 (9th Cir. 1996). In other words, the bankruptcy of the agent through whom you hold your partnership interest takes your agent out of the proceeding, but does not take you, an "indirect partner" out.

(1) IRC 6231(a)(7)(B) provides that if there is no general partner who has been designated as the TMP, or prior designations have been terminated, and the partnership has not made a subsequent designation, the TMP is the general partner having the largest profits interest in the partnership at the close of the taxable year involved. If there are two or more general partners with equal profits interests, the TMP whose name appears first alphabetically is selected:

1. In computing the largest profits interest, all limited partnership interests held by a general partner will be included in determining the general partner's profits interest in the partnership; (Treas. Reg. 301.6231(a)(7)-1(m)(2).)

2. The Service will determine the general partner with the largest profits interest based on the year-end profits interests reported on the Schedules K-1 filed with the partnership income tax return for the taxable year for which the selection is made; (IRC 6223(c)(1).)

3. Each general partner whose selection as TMP would immediately terminate because of the occurrence of one or more of the events enumerated in Treas. Reg. 301.6231(a)(7)-1(e)(i) through (iv), is treated as having a zero profits interest for that taxable year for purposes of applying the largest profits interest rules. (Treas. Reg. 301.6231(a)(7)-1(m)(3).)

4. The regulations do not require the Service to notify the partner who would be the TMP under the Largest Profits Interest Rule or any other partner who is the TMP when the Largest Profits Interest Rule is used. However, it may be in the best interests of the Service to do so for good customer relations.

(2) If a partner who has no profit, loss or capital interest in the partnership is considered a general partner under state law, the partner would only be the TMP if all other general partners had either resigned, had their designations revoked by the partnership, or their designations were terminated by means of Treas. Reg. 301.6231(a)(7)-1(l).

(1) A partnership may designate a person as the TMP for a taxable year only if that person was a general partner in the partnership at some time during the taxable year for which the designation is made, or is a general partner in the partnership as of the time the partnership makes the designation.

(2) If the partnership fails to designate a TMP or a prior designation has been terminated; the partnership has failed to make a subsequent designation; and the Service determines that it is impracticable to apply the largest profits interest rule, then the Service may select as the TMP for the taxable year any person who was a partner (whether general or limited) at some time during the taxable year.

1. The agent will first determine if there is another general partner who is eligible. If there is another eligible partner, the agent must notify the partnership in writing that the partnership must select a TMP within 30 days or the Service will select the TMP. The agent will notify the partnership using Letter 3205, Letter Regarding Notice of Change in Tax Matters Partner.

2. If there is no other eligible (consider Barbados #7 Ltd. v. Commissioner, 92 T.C. 804 (1989)) general partner, the Service may select a person who was a limited partner at the end of the taxable year under examination as the TMP. The Service must notify, within 30 days, the partner selected, the partnership, and all other notice partners of the selection, effective as of the date specified in the notice.

3. If there are no general or limited partners available for selection, the Service may issue the FPAA (to the TMP at the partnership address on the return) to timely conclude the examination. Treas. Reg 301.6223(a)-1(a)(1).

(3) Examiners will identify a TMP as early as possible in an examination. Since the TMP executes statute extensions with the Service and, under certain circumstances, enters into agreements that may be binding on other partners in the partnership, it is essential that the TMP be correctly identified.

1. If the TMP is not designated as prescribed by the regulations, either by the partnership or by the Service, the designation may be invalid. The designation must be perfected before proceeding with the examination.

2. If the examiner finds that the partnership has attempted to designate a TMP pursuant to the regulations but has not met all of the requirements, consult Area Counsel.

3. The examiner will document on Form 4318, Examination Workpapers Index, or supplemental work papers the criteria used to identify the TMP and any designation or selection made. It is the examiner's responsibility to determine if the designated TMP qualifies, based on the regulations, to be the TMP. Any written designation, other than that appearing on the return, will be stapled behind the first page of the partnership return.

   Note: It is the intent of the Service to have the partnership designate its own TMP, whenever practical.

(4) Delegation Order 4-19 (as revised) delegates authority to select a TMP for a TEFRA partnership to the Appeals Team Managers, Appeals Team Case Leaders (as to their respective cases), LB&I Team Managers, and SB/SE Group Managers when it is impracticable to apply the Largest Profits Interest Rule.

(1) For a partnership, the Largest Profits Interest Rule is deemed impracticable if on the date that the rule is applied, the general partner with the largest profits interest is not apparent from the Schedules K-1 and is not otherwise readily determinable.

1. In the event this occurs, the Group Manager (SB/SE) or Team Manager (LB&I) will select the TMP. See IRM 4.31.2.4.12.1, Notification Requirement.

(2) The Largest Profits Interest Rule is also impracticable if each general partner is deemed to have a zero profits interest because of the occurrence of one or more of the events described in Treas. Reg. 301.6231(a)(7)-1(l)(i) through (iv). In the event this occurs, the Group Manager (SB/SE) or Team Manager (LB&I) will select a limited partner as the TMP. However, a limited partner will only be selected as the TMP if that partner was a partner in the partnership at the close of the taxable year under examination.

1. The Group Manager (SB/SE) or Team Manager (LB&I) will notify the partner selected and the partnership of the selection, effective as of the date specified in the notice.

2. In selecting a limited partner as the TMP, the Group Manager (SB/SE) or Team Manager (LB&I) may consider the following criteria:

Considerations when selecting a TMP

The views of all partners having a majority of interests in the partnership regarding the selection, The general knowledge of the limited partner in tax matters and the administrative operation of the partnership, The limited partner's access to the books and records of the partnership The profits interest held by the limited partner, Whether the limited partner is a member of the partnership at the time the TMP selection is made, and Whether the limited partner is a United States person.

3. Lack of cooperation with the Service by a general partner with the largest profits interest is not a basis for finding that the partner cannot perform the functions of a TMP. If the partner cannot perform the function of the TMP, the Group Manager (SB/SE) or Team Manager (LB&I) will treat each general partner who fits the criteria as having a zero profits interest for the taxable year, and select a TMP from the remaining persons who were general partners at any time during the taxable year.

(3) The Largest Profits Interest Rule is impracticable if the general partner with the largest profits interest has been:

Largest Profits Interest Rules is Impracticable if:
notified of suspension from practice before the Service, incarcerated, residing outside the United States, its possessions, or territories, not able to be located, or not able to perform the functions of a TMP for any reason.

1. If all such general partners are either treated as having a zero profits interest for the taxable year under Treas. Reg. 301.6231(a)(7)-1(m)(3) or described in (c) above, the Group Manager (SB/SE) or Team Manager (LB&I) will select a limited partner as the TMP under the procedures described in this Handbook. See IRM 4.31.2.4.12, Selection of TMP by IRS.

(1) It is the examiner's responsibility:

1. to determine, at the beginning of the examination, that the designated TMP qualifies to be the TMP;

2. to note the steps taken to verify the designated TMP qualifies to be the TMP, as well as all steps taken in the TMP designation process;

3. to determine that any subsequent designation made meets the requirements of the regulations;

4. to take the necessary steps to perfect any subsequent designation that does not meet the requirements of the regulations or have a new designation completed; and

5. to consult with the TSPC for help in the above.

(2) The examiner's work papers must reflect all determinations made in identifying the proper TMP.

(3) If a TMP is a partnership or a limited liability company, the Service must determine who has authority under State law to sign for the TMP entity. See IRM 4.31.2.5.4(2), Persons Empowered to Sign A Consent.

(4) Consider, for example, partnership X. For tax year A, partnership X has designated as its TMP Y LLC. Z corporation is Y LLC’s sole member-manager and, under State law, has authority to bind Y LLC. John is Z’s chief financial officer and, under State law, has authority to bind Z corporation. John should sign the consent to extend the limitations period for tax year A for partnership X as follows: Y LLC, Tax Matters Partner of X, by Z Corporation, Manager of Y LLC, by John, CFO.

(5) When the partner is a C corporation, S corporation, or LLC, the examiner should determine the signing official who can bind that entity under state law.

(6) A trustee should sign on behalf of a trust. If the trustee is an entity, it is necessary to determine what kind of entity the trustee is and who could bind it. A Form 56, Notice Concerning Fiduciary Relationship, and the trust documents should be reviewed to verify the correct trustee is signing.

(7) When an LLC is the TMP, the examiner should review the operating agreement in light of the applicable state law to determine the signing official. In general, LLCs may be member managed or manager managed. In these situations, the signing official may be a manager that is not a member of the LLC. If the LLC is manager managed, the manager is the binding official and must sign on the LLC's behalf. A manager under state law must sign for the TMP regardless of whether the TMP is itself a TEFRA entity. The TMP of an entity only has certain powers with respect to the partners of that entity but has no power to bind the TEFRA entity itself unless the TMP is a manager under state law.

(8) To apply Treas. Reg. 301.6231(a)(7)-2 (Designation or selection of tax matters partner for a limited liability company) when examining an LLC filing as a partnership, the examiner must review the operating agreement to determine who the managers and members are for the LLC. Once it is determined who the member-managers are, as defined in Treas. Reg. 301-6231(a)(7)-2(b)(3), the regulation is then applied to determine if the designated TMP qualifies. The work papers must document how the managers and members were determined. A best practice would be to retain a copy of the operating agreement in the audit file.

(9) When reviewing the partnership agreement or LLC operating agreement, the agent needs to look for any restrictions to the powers of the TMP. The partnership agreement or LLC operating agreement may restrict the TMP's ability to sign consents. The work papers must document any restriction to the TMP's ability to sign consents. A best practice would be to retain a copy of the operating agreement in the audit file. Consult with your TSPC if a restriction exists.

(10) When a grantor trust is the partner in a partnership or LLC, the beneficiary cannot be designated the TMP. The trust itself must be designated. A fiduciary must be designated as the responsible party by using Form 56.

(11) Currently, a single member LLC that is a disregarded entity will be considered to be the partner in a partnership or LLC. The disregarded entity may be designated as the TMP. (See Revenue Ruling 2004-88.)

(1) IRC 6229(a) sets forth a minimum period of limitations for assessing tax attributable to partnership items (or affected items) for all partners. The general rule states that the statute of limitations for these items will not expire before the date that is three 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).

(2) The Tax Reform Act of 1986 amended IRC 6229 by adding IRC 6229(g) to clarify that the period of limitations for assessment with respect to partnership or affected items also applies to penalties and additions to tax imposed by IRC 6662. For tax years ending after August 5, 1997, penalties are determined at the partnership level and assessed in the same manner as partnership items (even though they remain affected items).

1. Partner level penalties are treated as affected items, which are subject to the IRC 6229(a) statute of limitations governing partnership items.

2. Under IRC 6230(a)(2), deficiency procedures must be followed before any penalties can be assessed.

Note: For tax years ending after August 5, 1997, penalties determined at the partnership level are not subject to deficiency procedures (IRC 6230(a)(2)(A)(i)) and must be assessed within the one year period, even if the underlying deficiency is subject to deficiency procedures.

3. A statutory notice of deficiency must be issued with respect to the penalties within one year after the expiration of the time for commencing a judicial proceeding regarding the FPAA, or if a judicial proceeding is commenced, the decision of the court becomes final.

4. IRC 6229(g) was made retroactive to September 3, 1982.

(3) The IRC 6229(a) statute of limitations is the earliest date on which the partnership or affected item assessment period expires with respect to the partners' returns. IRC 6501 will not shorten this period with respect to partnership or affected items, but may extend the time period for assessing individual partners.

1. Under IRC 6229(b), the IRC 6229(a) statute of limitations may be extended for partnership or affected items at the partnership level by executing a Form 872-O, Special Consent to Extend the Time to Assess Tax Attributable to Partnership Items, or a Form 872-P, Consent to Extend the Time to Assess Tax Attributable to Partnership Items. (See IRM 4.31.2.5.2, Extension of Statute at the Partnership Level.)

2. Therefore, a partner in three different partnerships could have three different IRC 6229(a) statute dates in addition to the normal IRC 6501 statute date.

(4) If partnership and/or affected items are converted to nonpartnership items (See IRM 4.31.2.5.7, Items Becoming Nonpartnership Items), the one-year statute (the one-year assessment date) of IRC 6229(f) applies. The IRC 6229(f) statute is used for all TEFRA issues. This includes affected items that require statutory notice procedures.

(5) PCS Report 4-4 lists TEFRA key case records and investor records with a pending one-year statute date. The report is broken down for distribution to area groups and functions. (See text of IRM 4.29.4.4.3, TEFRA One-Year Assessment Statute Date Listing, Report 4–4.) This report should be reviewed by the group manager.

(6) Other subsections of IRC 6229 come into play depending on the particular circumstances involved:

1. The issuance of an FPAA (See IRM 4.31.2.7.2.5, Final Partnership Administrative Adjustment Cases);

2. The failure to issue the NBAP to a partner entitled to such notice;

3. Fraud or failure to file a return (See IRM 4.31.2.5.8, TEFRA Return with a False or Fraudulent Item, or IRM 4.31.2.5.10, Failure to File a TEFRA Return); and

4. An unidentified partner as described in IRC 6223(e).

(7) The statute for an AAR is not discussed here. See IRM 4.31.4.2.2, TEFRA AAR Statutes, for a discussion of statute dates for an AAR and for the procedures and correct forms to extend the statutes for petitioning or processing of refunds.

(1) The IRC 6229(a) statute of limitations may be extended with respect to all partners by a consent executed at the entity level. The TMP or an authorized person (authorized in writing by all general partners and meeting the requirements provided in Treas. Reg. 301.6229(b)-1) may extend the period of limitations for the assessment of partnership and affected items for all partners by signing a consent before the expiration of the statutory period. It is preferred that the TMP or authorized person sign rather than have their POA sign.

(2) The statute of limitations also may be extended with respect to any partner by an agreement entered into with the partner (IRC 6229(b)(1) and IRC 6229(b)(3)). An unrestricted consent entered into by an investor extends the statute of limitations for assessment of any additional tax attributable to all partnership items or affected items for that investor only.

(3) It is strongly recommended that the TMP or authorized person (Treas. Reg. 301.6229(b)-1) sign all statute extensions. If someone other than the TMP or authorized person is signing the extension, for example the POA, it is advised to contact your Area Counsel.

(4) The partnership agreement or LLC operating agreement must be reviewed to determine if there are any restrictions on the powers of the TMP. For example, the partnership agreement or LLC operating agreement may restrict the TMP's ability to sign consents. Consult with your TSPC if a restriction exists.

(5) It is unclear as to what TMP duties are assignable to a POA. Work with your TSPC if the POA wishes to assume some duties of the TMP.

(6) The examiner charged with the partnership return is responsible for the IRC 6229(a) statute for all partners. All regular statute extension request procedures must be followed when soliciting Form 872-O, Form 872-P, Form 872, Consent to Extend the Time to Assess Tax, or Form 872-A, Special Consent to Extend the Time to Assess Tax, including requests for restricted consents. If the examiner receives a return letter with a signed consent that places conditions on the extension, the examiner should include these terms in a revised Form 872, if they are approved by counsel, and re-mail to the taxpayer for signature. (See IRM 25.6, Statute of Limitations, for examples of approved language.)

(7) The case file must be documented that managerial approval has been obtained to solicit a consent to extend the statute of limitations. The consent should be solicited from the taxpayer a minimum of one year prior to the statute expiration date to allow for processing.

(8) The Restructuring and Reform Act of 1998 (RRA '98) section 3461(b), imposed provisions that must be followed in soliciting a consent to extend the statute of limitations. The provision requires the Service to provide the taxpayer(s) or their authorized representatives with an explanation of their rights to decline to extend the assessment statute of limitations, or to request that any extension be limited to a specific period of time or to specific examination issues. In order to meet the provisions of RRA '98, the IRM has established the following procedures whenever an extension to the statute of limitations is solicited:

1. Letter 907, Request to Extend Assessment Statute, and Publication 1035, Extending the Tax Assessment Period, must be provided to both the taxpayer and authorized representative. A copy of Letter 907 must be attached to the Form 872 or Form 872-A in the file and the fact of its mailing documented in the case activity record.

2. Examiners should ensure that the proper extension form is transmitted to the taxpayer and representative.

3. Upon receipt of the executed copy from the taxpayer or authorized representative, the consent should be date stamped received and forwarded to the manager for execution. All requests for restricted consents must be considered. If the examiner receives a return letter with a signed consent that places conditions on the extension, the examiner should include these terms in a revised consent, if they are acceptable to the Service, and re-mail to the taxpayer for signature. A copy of the executed consent must be returned to the taxpayer and/or authorized representative with the original attached to the tax return. The examiner should ensure that both the AIMS and ERCS databases are properly updated to reflect the new statute of limitations date.

(9) If the taxpayer or authorized representative does not wish to execute a consent, they should be notified that the case will be evaluated to determine whether an FPAA will need to be issued.

(10) Further guidance on the control of statutes can be found at IRM 25.6, Statute of Limitations Handbook.

(11) TEFRA partnership level consent and consent termination forms are as follows:

1. Form 872-P is a closed-end consent for TEFRA partnership returns (it is preferred to the Form 872-O.)

2. Form 872-O is an open-end consent for TEFRA partnership returns. (Soliciting this form is not recommended as the Form 872-N, described in paragraph (12)(b) below will terminate the agreement leaving only 90 days to complete the examination.);

3. Form 872-N, Notice of Termination of Special Consent to Extend the Time to Assess Tax Attributable to Partnership Items, is used to terminate a Form 872-O.

4. Form 872-O or Form 872-P Attachment (Allows room for restricted language). The Form 872-O and Form 872-P should have the statement "Restricted Consent, See Attached Statement" typed on page 1.

(12) The key case examiner is ultimately responsible for the IRC 6229(a) statute as it pertains to the TEFRA key case and its related partners while the key case is in his or her possession. Although the CPFs maintain control of the investor files, they are only responsible for the assessment of tax and penalties once the IRC 6229(d) or (f) one-year assessment periods begin running and for the investor statutes that are extended under IRC 6501 for returns that may be in their possession.

1. Execution of a Form 872-P or Form 872-O by the TMP or authorized person extends the IRC 6229(a) statute with respect to partnership and affected items for all partners.

   Note: For tax years beginning on or after June 28, 2002, TEFRA entity-level consents to extend the IRC 6229 period for a consolidated group where a subsidiary is the TMP, the TMP must sign. The TMP’s parent does not need to co-sign the consent. For tax years beginning before June 28, 2002, both the subsidiary TMP and the parent must sign.

2. An open-ended consent on a Form 872-O can be terminated by execution of a Form 872-N. The 90 day period begins when the Form 872-N is delivered to the office shown on the Form 872-O or Form 872-U, Change of Address to Submit Notice of Termination of Special Consent to Extend the Time to Assess Tax; therefore, the Form 872-N must be date stamped when received by that office. If the Form 872-N is received by other than the key case office, it should be forwarded to the key case examiner immediately. The examiner should date stamp the Form 872-N and forward a copy to the CPF for association with its administrative file.

(13) The key case examiner is responsible for updating AIMS when an extension is secured for the key case. A copy of that extension should be forwarded to the appropriate campus email box.

(1) The Service may extend the IRC 6229(a) statute by agreement under IRC 6229(b)(1)(B) for the assessment of partnership and affected items for all partners and/or extend the statute for the assessment of partnership and affected items for an individual partner.

(2) Extending the TEFRA statute at the individual partner's level is not the usual approach and, except for CIC cases, should only be used in mitigating circumstances, e.g., the TMP is not readily determinable. Individual partners cannot execute Form 872-P or Form 872-O consents, since they are designed for use by the TMP to extend the statute at the partnership level. If the investors statute is being extended beyond the one year assessment statute date period, the OYD needs to be updated to match the extended statute date.

(3) An extension under IRC 6229(b)(1)(A) for a partner can be included in an extension of the IRC 6501 statute under IRC 6501(c)(4), using Form 872 or Form 872-A. Use of Form 872 or Form 872-A at the partner level to extend the partnership statute is not encouraged (except in CIC audits) because of the administrative issues this creates. However, if a consent to extend the partnership statute is secured at the partner level, the consent must retain the TEFRA paragraphs to expressly provide that it extends the period to assess tax attributable to partnership items.

1. For all cases where the taxpayer is a direct or indirect investor in pass-through entities that file (or should file) a Form 1065, current Form 872 and Form 872-A should be used with TEFRA paragraphs intact. As an example, a large corporate taxpayer may be invested in hundreds of partnerships or LLCs subject to TEFRA procedures. In this situation, it may not be known which of these pass-through entities are subject to TEFRA. If a significant TEFRA partnership adjustment is picked up during an examination of a taxpayer/investor, the period of assessment will be held open by the executed Form 872 or Form 872-A. It is very important to note that a TEFRA partnership proceeding is still required to make this adjustment even though the taxpayer who has executed the Form 872 or Form 872-A consent may be the only partner adjusted as a result of the TEFRA partnership proceeding unless other partners or the TMP have also extended the period for assessing partnership items.
   

2. In the case of consolidated corporate returns where the subsidiary is a partner in a TEFRA partnership, consent to extend the statute using current Form 872 or Form 872-A must be in the name of the parent and the subsidiary. The parent of the consolidated group and the subsidiary partner(s) will sign the partner-level Form 872 or Form 872-A pursuant to the consolidated return rules under Treas. Reg. 1.1502- 77. In situations where the parent wishes to restrict the Form 872 or Form 872-A or have the subsidiary, who is the actual partner under state law, be the sole signatory on the waiver, the examiner should contact local Area Counsel before executing the waiver. If any other subsidiary is known to be a partner in another TEFRA partnership, it is best practice to secure a separate signature from that subsidiary. This can be done on an attachment to the Form 872 or Form 872-A using Form 13924, Attachment for Consolidated Group Signatures (for use with Form 872 revised 10-2009) or Form 13923, Attachment for Consolidated Group Signatures (for use with Form 872-A revised 10-2009).

3. In the case of consolidated corporate returns where the parent is partner, the consent should be in the name of the parent and subsidiaries and signed by the parent. In situations where the parent wishes to restrict the Form 872 or Form 872-A, the examiner should contact local Area Counsel before executing the waiver. If any other subsidiary is known to be a partner in another TEFRA partnership, it is best practice to secure a separate signature from that subsidiary. This can be done on an attachment to the Form 872 or Form 872-A using Form 13924 or Form 13923.

   Note: It may not be practical to know if all subsidiary partners are part of another TEFRA partnership. In that case, ensure the parent signs the waiver.

4. Any time the statute is extended at the partner level, a copy of the extension must be sent to the controlling campus. See IRM 4.31.2.5.3.1, TEFRA Statutes Secured at the Partner Level ( AC Statute Procedures).

5. In those cases where it is appropriate to solicit a partner level extension but the partner refuses to sign the consent, the examiner should document the refusal in the case file.

(4) Partnership and affected items that are converted to nonpartnership items are no longer subject to the period for assessment under IRC 6229(a). They must be assessed within the one year period provided for converted partnership items (nonpartnership items) under IRC 6229(f). Consents secured under the instructions in (3) also extend this one year period.

(5) There may be situations where an unrestricted extension of the IRC 6501 statute using a Form 872-A was used to provide a longer period for assessment than under IRC 6229(f).

(6) An extension using earlier versions of Form 872-A terminates upon the issuance of any notice of deficiency. To prevent the termination of a Form 872-A with respect to converted partnership and affected items (nonpartnership items), a Form 872-A, paragraph 1, may have been modified as indicated above in the note, see IRM 4.31.2.5.3(3)(a), Extension of Investor Statute for TEFRA and NonTEFRA Items.

(7) However, Form 872-A is subject to termination by the execution of a Form 872-T, Notice of Termination of Special Consent to Extend the Time to Assess Tax, by the partner or the Service. If the situation arises where a Form 872-A was used to extend the statute for affected items, request advice from Area Counsel.

(8) The Technical and Miscellaneous Revenue Act of 1988 (TAMRA) provided that the IRC 6229(f) statute may be extended by agreement between the taxpayer and the Service. The Taxpayer Relief Act of 1997 provides that partial agreements may be secured, because the one-year date (IRC 6229(f)) that controls all assessments is the one-year date applicable to the last item to be resolved.

(1) The TMP may sign an agreement to extend the statute of limitations for assessment for partnership and affected items for all partners. See Exhibit 4.31.2-5, Format for TMP Signatures when Signing Extensions.

(2) When the TMP is not a natural person (individual), it is important that the examiner correctly analyze the entity TMP to determine the correct individual that can legally sign for the entity. If the designated TMP is also a partnership or an LLC filing as a partnership, the examiner must determine who is the general partner(s) or member manager(s). If that pass-through partner is itself a TEFRA partnership, the TMP of that pass-through partner is not necessarily the person authorized under state law to sign the consent. Care should be taken to ensure the correct person is signing the consent. The authorized person will most likely be a general partner or a manager if an LLC.

(3) When the partner is not a pass-through entity or an individual, the examiner should determine who can bind that entity. For example, for a C corporation it would be an officer; for an S corporation, it would be an officer; for a trust, it would be the trustee. The examiner should be consulting with his/her TSPC and/or Area Counsel when this situation arises. It is important to determine not only the correct individual to sign at the bottom tier, but also how to style the language to describe the relationship from the bottom tier up to the partnership or LLC that is being examined.

(4) For consolidated tax years beginning before June 28, 2002, if a subsidiary in a consolidated filing group is the TMP of a partnership, both the signature of the parent (signing on behalf of the subsidiary TMP) and the signature of the subsidiary TMP are recommended on any statute extension by the TMP on behalf of the partners of the partnership. The signature blocks would appear as follows:

• [Name of common Parent corporation] by [name of authorized representative of Parent corporation, title], as common parent of the [name of Parent corporation] and Subsidiaries consolidated group, on behalf of [name of Subsidiary corporation], Tax Matters Partner of [name of TEFRA partnership].

• [Name of Subsidiary corporation], Tax Matters Partner of [name of TEFRA partnership] by [name of authorized representative, title].

(5) For consolidated tax years beginning on or after June 28, 2002, if a subsidiary in a consolidated filing group is the tax matters partner of a partnership, the signature of the subsidiary TMP is required on any statute extension signed by the TMP on behalf of the partners of the partnership. See Treas. Reg. 1.1502-77(a)(3)(v). The signature block would appear as follows:

• [Name of Subsidiary corporation], Tax Matters Partner of [name of TEFRA partnership] by [name of authorized representative, title].

(6) In addition, Treas. Reg. 301.6229(b)-1 provides that a partnership may authorize any other person to extend the period described in IRC 6229(a), with respect to all partners, by filing a statement with the campus where the partnership return is filed (or with the examiner who will forward a copy to the key case campus).

1. The examiner will attach the original authorization to the back of the first page of the return and will note in red on the top of the copy, "Campus Copy".

2. The examiner will ensure that the authorization:

(7) If a POA substantially complies with the criteria outlined in IRC 6229(b)(1)(B) and Treas. Reg. 301.6229(b)-1, consents executed by the POA would be valid. As a general rule, a POA designated on Form 2848, Power of Attorney and Declaration of Representative, may not meet these criteria and the extension signed by the POA may not be valid. If this situation exists, request advice from Area Counsel.

(1) Consents to extend the statute of limitations for assessing tax (Form 872, Form 872-P, and other consent forms) can be accepted by fax if taxpayer contact has been made and the case history documents the date of contact and the desire of the taxpayer to submit the extension by fax.

(2) Faxed documents must be legible and not condensed.

(1) The IRC 6229(a) statutory period, i.e., the original 3 year period, is suspended once the FPAA is issued for 150 days plus one year. (IRC 6229(d).)

1. The statutory period is suspended for the 150 day period during which an action may be brought under IRC 6226. The 150 day period for bringing suit consists of 90 days for the TMP to file a petition in court plus another 60 days for the notice partners or notice group to file a petition in court. (The 90th and 60th days are subject to the Saturday, Sunday, and legal holiday rule.) The Service cannot make an assessment against any of the partners during this 150 day suspension period unless their partnership items were previously converted to nonpartnership items. (See IRM 4.31.2.5.7, Items Becoming Nonpartnership Items.)

2. The one year statutory period in which assessments can be made begins to run on the 151st day.

3. If during this 150 day period the TMP or a notice partner files a petition for judicial review, the statutory period for assessment is suspended until the court decision becomes final. (See IRC 7481). After the decision is final, the Service has one year to assess the tax. The decision becomes final:

(2) If the FPAA is mailed to the TMP prior to the expiration of the IRC 6229(a) statute (but the FPAAs are mailed to the partners after the expiration of the statute), the statute for the investors is suspended from the date the FPAA was mailed to the TMP. The FPAAs must be mailed to the notice partners within 60 days after the FPAA is mailed to the TMP. (IRC 6229(d)(2).)

(1) When partnership items or affected items are converted to nonpartnership items, the statute of limitations with respect to these items is governed by IRC 6229(f) instead of IRC 6229(a). Under IRC 6229(f), the statute of limitations does not expire before one year after the date the items become nonpartnership items. The Technical Corrections Act of 1988 provides that the IRC 6229(f) statute may be extended by agreement entered into between the Secretary and a partner. An extension pursuant to IRC 6229(f) cannot be entered into at the partnership level but a partner can extend the statute using a Form 872-F, Consent to Extend the Time to Assess Tax Attributable to Items of a Partnership that have Converted Under IRC 6231(b) of the Internal Revenue Code, current Form 872, Consent to Extend the Time to Assess Tax, or Form 872-A, Special Consent to Extend the Time to Assess Tax. A partner can only extend the separate one year period under IRC 6229(d) created by a decision being entered in any court or due to an FPAA defaulting by executing a current Form 872 or Form 872-A.

(2) The entry of a court decision is not a conversion event. Under IRC 6231(b), items become nonpartnership items as of the date:

1. A notice is mailed to the partner advising treatment of such items as nonpartnership items, but only if this notice is sent before the NBAP;

2. The partner files suit under IRC 6228(b) after the Service fails to allow an AAR;

3. A settlement agreement is entered into with the partner. (See IRM 4.31.2.5.7.1, Conversion to Nonpartnership Items by Execution of Agreements, Forms 870-PT and 870-LT.);

4. An untimely notice letter (Letter 3857, Untimely Notice - TEFRA Proceedings Ongoing, or Letter 3858, Untimely Notice - TEFRA Proceedings Complete) is sent under IRC 6223(d) and the partner's partnership items convert to nonpartnership items under IRC 6223(e);

5. Certain special enforcement events occur under IRC 6231(c). (See IRM 4.31.2.5.7.3, Conversion to Nonpartnership Items by Reason of Special Enforcement Areas.)

(3) Under IRC 6229(f), if an agreement with respect to partnership items was accepted on behalf of the Service, the statutory period for assessing partnership items and affected items (related penalties, etc.) would be extended to one year from the acceptance of the agreement by the Service. For tax years ending after August 5, 1997, penalties are assessed in the same manner as partnership items.

(1) Under IRC 6229(c)(1), if any partner, with the intent to evade tax, signs or participates directly or indirectly in the preparation of a partnership return that includes a false or fraudulent item:

1. In the case of partners so signing or participating in the preparation of the return, the statute of limitations is unlimited. For consideration of the impact of the conversion on the period under IRC 6229(c)(1), (otherwise applicable to partners participating in fraud) contact Area Counsel.

2. In the case of all other partners, even though they did not sign or participate in the purported fraud, the IRC 6229(a) statute is extended from three to six years.

(1) If any partnership omits from gross income an amount in excess of 25 percent of the amount of gross income stated on its return (IRC 6501(e)(1)(A), the IRC 6229(a) statute is extended from three to six years for all partners. (IRC 6229(c)(2)) IRC 6501(e)(1)(B) defines the gross income for purposes of IRC 6501(e)(1)(A). Gross income includes income from the sale of goods or services and an understatement of gross income by reason of an overstatement of unrecovered cost or basis in an omission from gross income.

(2) Under Treas. Reg. 301.6231(c)-6, a partner's partnership items, with respect to a partner whose taxable income is determined by use of an indirect method of proof of income, convert to nonpartnership items on the date a deficiency notice, based upon an indirect method of proof of income, is mailed to the partner. The notice must include any adjustments from the partnership(s).

1. The period for assessment of tax under IRC 6229(f) applies.

2. The one-year assessment period starts (but is immediately suspended by the notice of deficiency) since the partnership items converted to nonpartnership items.

(1) In the case of a failure to file a return by a partnership for any taxable year, any tax attributable to a partnership item or attributable to an affected item arising in the year may be assessed at any time. (IRC 6229(c)(3))

(2) If a partnership return is not filed but Schedules K-1 are issued to the partners, TEFRA procedures will be followed, if it is determined that a partnership exists.

(3) IRM 20.1.2.4, Failure to File a Partnership Return—IRC 6698, explains the application of the failure to file penalty.

(1) A substitute for return filed by the Service (See IRM 4.4.9, Delinquent and Substitute for Return Processing.) is treated as if no partnership return has been filed so the period for assessment is open indefinitely.

(1) A situation may arise where TEFRA partnership proceedings are instituted, and it is subsequently determined that the partnership is the second (or lower) tier partnership of another TEFRA partnership. The second (or lower) tier partnership is a pass-through partner, and the second (or lower) tier partnership's partners are indirect partners of the first tier. (IRC 6231(a)(9) and IRC 6231(a)(10))

(2) As such, the partners are governed by the first tier proceeding (IRC 6231(a)(2)(B)), and adjustments may be made to the second (and lower) tier indirect partners' returns through the first tier TEFRA partnership proceeding. Absent partnership adjustments to the second (or lower) tier return which are independent of the first tier partnership proceeding, a separate statute extension for the second (or lower) tier partnership is unnecessary. (IRC 6231(a)(2)(B))

(3) IRC 6229(a)(1)(B) authorizes the TMP to execute a statute extension for all partners, and a statute extension executed by the first tier TMP will protect the statute with respect to the second tiers (and lower) indirect partners.

(1) If a partnership item impacts an NOL or credit carryback or carryover, the NOL or credit carryback or carryover is treated as an affected item. As an affected item, the NOL or credit carryback is subject to the partnership's statute of limitations under IRC 6229(a) for the taxable year generating the loss or credit. This applies to a capital loss carryback as well.

(1) Form 5546, Examination Return Charge-out Sheet, with the literals "FLOW THROUGH NOTIFICATION" and with the investor Schedule K-1 attached, will be received from the key case CPF by the examining agent, via Form 3210, Document Transmittal.

(2) The agent in control of a key case investor must review the investor's return for NonTEFRA issues and Schedule K-1 inconsistencies.

(3) If it is determined that no NonTEFRA issues exist, the investor's return should be forwarded to the key case campus for suspense as long as the return is not an LB&I CIC/LCC, or other corporate specialty case. If the return is one of the latter, then the case must be suspended in the field.

(4) If a Schedule K-1 discrepancy is identified, the return should be checked for a statement of inconsistency. If no such statement was filed, the taxpayer will be contacted to explain the discrepant item(s). When contacting a taxpayer, their identity must be verified. See IRM 21.1.3.2.3, Required Taxpayer Authentication, for authentication language and IRM 21.1.3.9, Mailing and Faxing Tax Account Information, for fax language guidelines.

(5) When the taxpayer responds, the following action will be taken after a review by the agent:

1. If the taxpayer provides an allowable explanation for all discrepant item(s), no other action related to the discrepant item(s) is necessary. For example, the income per the Schedule K-1 may be greater than that reported on the return. If the taxpayer responds and explains that the difference was caused by a passive loss carry over, then no Schedule K-1 discrepancy issue would exist.

2. If discrepant item(s) create a decrease in tax, the refund will not be processed until the TEFRA proceedings are completed. The decrease in tax will not be processed immediately to provide the maximum interest offset to the taxpayer. If the taxpayer wants the decrease in tax processed, the taxpayer should make the request in writing. As part of the request, the taxpayer should acknowledge that it is understood that any future assessment as a result of the TEFRA examination may result in more interest than would be charged had the refund not been currently allowed.

3. If the taxpayer filed a statement identifying the inconsistency with the return in accordance with IRC 6222(b), the issues raised must be considered as part of the examination of the key case. The statement identifying the inconsistencies should be on Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request (AAR). If the Form 8082 is not utilized, and such statement must contain the same information as if the Form 8082 had been used. If there are any questions about the validity of the statement, contact the TSPC to determine if the statement may be considered to meet the criteria of IRC 6222(b). The agent examining the key case should be contacted and provided the necessary information from the investor return to consider the issues raised by the investor.

4. If discrepant item(s) create an increase in tax and are not identified on the investor's Form 8082, the tax will immediately be assessed, via a computational adjustment (Letter 4735, Notice of Computational Adjustment). Treas. Reg. 301.6222(a)-2(c)(2) allows the Service to adjust the taxpayer's return via a computational adjustment in order to bring the taxpayer's return in line with Schedule K-1.

5. Computational adjustments are made directly to the taxpayer's return with no agreement necessary. The taxpayer is given an opportunity to review the audit report prior to assessment or any tax due. The investor may only raise issues with the computation of the additional tax due not the substantive issues of the key case examination.

(1) When the TEFRA key case issues are resolved, the field examination or Appeals will be notified by the campus.

(1) If the NonTEFRA issues are resolved before the TEFRA issues, the NonTEFRA issues will be closed using normal closing procedures; however, any assessments or refunds are processed as a partial. When the examiner is ready to close the NonTEFRA examination, the examiner should check a current transcript to be sure that the TEFRA issues were not already assessed. The examiner should also verify that the investor is still linked by checking a TSUMYI print. The TSUMYI print will show what key cases the investor is linked to, if any.

(2) If the investor is no longer linked, consult with the TSPC to determine if the investor should be re-linked to the key case.

(3) A refund processed as a partial closure will not generate the refund. The refund is frozen to provide the maximum interest offset to the taxpayer should the TEFRA examination result in an assessment. The refund can be released by submitting Form 3870, Request for Adjustment, and/or a written statement from the taxpayer. The taxpayer should state that they are aware of the pending TEFRA examination and understand that releasing this refund may result in additional interest accruals. Any NonTEFRA assessments should be made prior to suspending the case for any reason.

(4) If the NonTEFRA issues are agreed, then:

1. The examiner secures an agreement in the format prescribed in IRM 4.10.8, Examination of Returns, Report Writing.

2. The examiner forwards the investor case file through Technical Services for a partial assessment on the NonTEFRA issues, with the exception of, CIC corporate, and corporate specialty cases.

3. After the partial assessment, CCP forwards the case to the CPF with control of the partner return for suspense until resolution of the TEFRA issues.

Note: For all such cases, Form 3198 (Special Handling Notice) is prepared as appropriate and attached to the front of the investor case file. The "PARTIAL AGREEMENT" and "OTHER" blocks will be checked with the following statement added: "TEFRA linked investor with unresolved TEFRA pass-through issues – forward case file to CPF after assessment of the NonTEFRA issues and issuance of Letter 987". Cases selected for Technical Services follow normal review procedures before forwarding to CCP for assessment.

4. If the partner is a corporate LB&I, CIC corporate or corporate specialty case, any deficiency or refund due to the investor for the agreed NonTEFRA adjustments will be assessed or refunded prior to suspending the investor case awaiting the results of the TEFRA issues. A partial assessment package will be prepared and sent to the CCP Fort Unit. The package will include the audit report, Form 5344, and the first four pages of the investor tax return which will be in a folder. Form 3198 will be put on the front of the folder; complete the taxpayer identifying information at the top and check the "Partial Assessment" and "Other" blocks. Under other include the following statement: "After processing the partial assessment (or refund) enclosed, return all documents to exam group [employee group code], Stop XXXX" or other appropriate information such that the partial assessment documents will be returned to the group for association with the investor case file.

   Note: The field will also hold all investor returns where the TEFRA statute is controlled at the partner level. When the only issues remaining are the unresolved TEFRA issue(s), the group should update the AIMS status code to 14 and the statute date to an "HH" alpha code.

(5) If the NonTEFRA issues are unagreed, then:

1. The examiner prepares a report in the format prescribed in IRM 4.10.8, Examination of Returns, Report Writing.

2. The investor case file is forwarded following ILSC closing procedures.

3. If a protest is filed on the NonTEFRA issues before the TEFRA issues are resolved, any tax from resolved TEFRA linkages should be computed and assessed before the investor case is sent to Appeals, especially for settlement agreements for partnership tax years ending after August 5, 1997 as interest is suspended under IRC 6601(c) 30 days after the settlement agreement is signed on behalf of the IRS

4. If the examiner determines that the tax from resolved TEFRA linkages will not be assessed before sending the case to Appeals, the statute should be extended such that there are at least 365 days remaining on the statute. Appeals will not accept an investor case with less than 365 days left on the statute. IRM 8.21.2.4, Cases Not Accepted by Appeals.

5. The case is forwarded from the Technical Services to Appeals.

6. Appeals forwards the case to the CPF with control of the investor return for suspense if the TEFRA issues remain unresolved after Appeals consideration. (See IRM 4.31.3.4.9.2, Field Suspense of LB&I Partners, for instructions regarding to processing of corporate LB&I, CIC corporate, Joint Committee and/or other corporate specialty cases.)

Note: For all unagreed NonTEFRA issue cases Form 3198 is prepared as appropriate and attached to the front of the investor case file. The "OTHER" block is checked with the following statement added: "NOTE TO APPEALS: If unresolved TEFRA issues remain after NonTEFRA issues are resolved in Appeals, forward the case to the CPF". If the investor is a LB&I, CIC corporate, or other corporate specialty case, the statement to be added is: "NOTE TO APPEALS: If unresolved TEFRA issues remain after NonTEFRA issues are resolved in Appeals, forward case to the appropriate Technical Services Unit, which will forward the case to the Group for suspense". Processing instructions are outlined in IRM 4.4, AIMS/Processing Handbook.

(6) If the NonTEFRA issues are no changed, then:

1. The examiner prepares a report in the format prescribed in IRM 4.10.8, Examination of Returns, Report Writing.

2. The examiner forwards the partner case file through Technical Services to the partner CPF for suspense until resolution of the TEFRA issues.

3. If the case is an LB&I, CIC corporate, or corporate specialty, the no change letter for NonTEFRA cases will be issued and the case suspended by the LB&I group in Status 14 until the TEFRA pass-through examination is resolved.

(7) If the investor case is suspended in the field awaiting a Joint Committee resolution:

1. Any agreed deficiencies relating to NonTEFRA issues or resolved TEFRA linkages will be assessed prior to placing a Joint Committee case in suspense, and the case will be forwarded to the Joint Committee key area for a procedural and technical review under the general provisions of IRM 4.36, Joint Committee Procedures.

2. Upon completion of the review and resolution of any questions raised by the Joint Committee Refund Counsel, the case will be returned to the group (without the preparation of a Joint Committee report) and suspended in Status 14 until notification is received from the CPF that the remaining TEFRA issues are resolved or they can use the accelerated closing procedures explained below in IRM 4.31.2.6.3.3, Accelerated TEFRA Partner Closing Procedure.

3. When notified, any deficiencies will be assessed following area partial assessment procedures.

4. Upon the field's receipt of the Form 5344 and an examination report, the examining area office will forward the completed Joint Committee case to the key area Technical Services for final processing and preparation of the Joint Committee report.

(1) The Schedule K-1 true-up issue occurs during the examination of an unlinked TEFRA partner's return. The partner filed their return using estimates for the partnership pass-through items because they had not received their Schedule K-1 prior to filing.

(2) During the examination, the partner will disclose that their return is not consistent with the Schedule K-1 filed by a related pass-through entity. The agent should verify whether the pass-through entity in question is a TEFRA entity.

(3) If the disclosed Schedule K-1 discrepancy results in either an increase or decrease to tax to the partner, and the pass-through entity is a NonTEFRA entity, the agent should make any necessary adjustments as part of the NonTEFRA examination of the partner. IRC 6501 controls the assessment statute.

(4) If the pass-through entity is a TEFRA entity and the disclosed Schedule K-1 discrepancy would result in additional tax to the partner, the tax must be assessed before the IRC 6229 statute has expired on the pass-through entity.

(5) If the pass-through entity is a TEFRA entity and the disclosed Schedule K-1 discrepancy would result in a refund, the Service may issue the refund or wait for the partner to file a timely AAR. To be timely, the AAR must be filed before the expiration of the IRC 6229 statute (including extensions) or no refund can be allowed. The AAR should be filed using the Form 8082. If no Form 8082 is utilized, but the information required by that form is included on the claim filed, consult with your TSPC to determine if the information provided is adequate to consider it an AAR for TEFRA purposes.

(1) IRM 4.4.18.5, Over $10 Million Deficiency, should be followed when adjustments result in a Balance Due (this includes interest and penalties) over $10 million.

(2) Each year stands alone when determining the $10 million threshold.

(3) For each tax period, where the Balance Due (this includes interest and penalties) is $10 million or more, a copy of the Form 4318, Examination Workpapers Index, or Form 4700, Examination Workpapers, is to be sent to the Office of Unpaid Assessment Analysis. This information will be sent by Centralized Case Processing after the case has been closed.

(1) When an erroneous refund (where the partners statute has expired) is identified, the identifying area needs to complete the Form 12356, Erroneous Refund Worksheet, and send it to the appropriate Accounting Function.

(2) The form should be sent to the coordinator or their manager per IRM 3.17.80-4, Erroneous Refund Coordinators.

(1) The TSPC responsibilities include but aren't limited to the following:

1. Main contact for LB&I and SB/SE field agents and their managers to explain and clarify the TEFRA unified audit procedures.

2. Give advice on the preparation and signing of statute extensions.

3. Responding to TEFRA Specialist Referrals:

Specialist Referrals Response

The return is an ELP or any complex partnership having greater than 100 direct or indirect partners (i.e., partners of direct pass-through partners) The examiner wishes to deviate from the mandatory PCS linkage. It is not possible to conclude the TEFRA proceeding or secure timely statute extensions at the TEFRA key case-level and the field agent wants to examine the partnership using the investor IRC 6501 statute. Form 8082, Administrative Adjustment Request (AAR), an amended return or a claim has been filed by any partner or TMP filing on behalf of the entire TEFRA partnership. The return is a CIC/LCC related Partnership. The Service wants to rely on the partner IRC 6501 statute(s) because the partnership IRC 6229 statute has expired or will expire within 180 days (AC statute).

4. Be the liaison with the campus pass-through function or PTE on:

Coordination with the CPF Includes:
PCS linkage and any related linkage problems ) Review the Form 8339, PCS Change, for CIC/LCC TEFRA investors (See IRM 4.29.2, Maintaining the TEFRA Database) Referral of investor cases from the CPF to the field for report write-up due to complex issues

5. Coordinate with Area Counsel on key case technical questions involving TEFRA code sections.

6. Coordinate with the Campus PCS Coordinator on processing of Form 8339, and other PCS related issues.

7. Participating in the initial meeting with the taxpayers in more complex TEFRA cases to assist with the determination of the tax matters partner, statute of limitations, etc. They also participate in closing conferences and conduct on going case reviews to provide guidance when needed.

8. Monitor field controlled investor statutes using the PCS 4-4 extract provided by the CPF PCS Coordinator.

9. Distributing the Report PCS 4-4, that are received from the CPF, to the appropriate field group.

10. Determining the correct IRC 6404(g) notification date to be included on the Form 14434, TEFRA Notice Package Check Sheet, or in the case of 60 day letters a statement that CPF will determine the date.

11. Ensure the Form 14434 includes the partnership adjustment amount. This amount should be the same as that entered on the Form 5344, line 34 - Adjustment Amount.

12. Reviewing all TEFRA partnership (key) cases regardless of the audit outcome. Their review includes but is not limited to the following:

Partnership Review Includes
Whether the partnership is TEFRA/NonTEFRA Validity of the TMP and POA Validity of statute of limitations and any extension(s) secured Application of expired IRC 6229AC statute procedures Whether all TEFRA statutory and procedural guidelines have been followed

13. Review closing packages for completeness. Make sure items reconcile. Make sure items being adjusted are explained and will makes sense to the campus employees making the adjustments.

    Note: The campus employees making the IMF adjustments are GS-8 Tax Examiners. The adjustments need to be explained so that it is clear as to how the adjustments need to be applied.

14. Write the statutory notice language for the FPAA in unagreed TEFRA cases requiring issuance of the notice and coordinate with Area Counsel for mandatory review.

15. Preparing and issuing the following letters to the Tax Matters Partner following the case review:

TEFRA Letters

Letter 1831, Request for Administrative Adjustment Letter 1864, Notice of Beginning of Administrative Proceedings (NBAP) Withdrawal Letter Letter 2621, No Adjustments Letter Letter 3857, Untimely Notice Letter (TEFRA Proceedings Ongoing) Letter 4839, Audit Termination Letter 2064, No Change Notice of Final Partnership Administrative Adjustment (FPAA) Letter 1830-F, Notice of Final Partnership Administrative Adjustment (FPAA). The coordinator will also prepare and issue the following letters to the Tax Matters Partner when statute constraints exist in order to meet Appeals timelines; Letter 1827-F, TEFRA Partnership 60 Day Letter Letter 1829-F, TEFRA Partnership 60 Day Letter including affected item adjustments

16. Processing agreed key cases by countersigning all settlement agreements (all direct partners and the TMP binding non-notice partners must sign agreements).

17. Preparing and submitting a package to the CPF identifying the status of the key case. Note: the CPF issues all partner letters/notices unless the key case is not linked. The coordinator issues the partner notices when the case is not linked.

18. Issuing Form 3990, Reviewer's Report, to the field agent addressing not only TEFRA procedures/guidelines, but also, technical issues.

19. Completing the reviewer check sheet used to identify areas of concern.

20. Conducting presentations to both LB&I and SB/SE field agents and tax computation specialists.

21. Reviewing and processing PCS linked partner returns closing to CCP and transferring to the CPF (if applicable). This includes processing assessments/refunds, and addressing PCS linkage for exam years and carryover and carryback years.

22. Reviewing and processing linked ILSC (1065 and 1120-S) key cases and investors.

23. Prepare and submit the ILSC closing packages.

(2) Assist the field Revenue Agent/Group Manager when the imminent procedures are not followed, and/or when the case is not linked on PCS, as required.

(3) Work with the other Area Coordinators whose specialty impact the TEFRA case, as applicable.

(1) Upon receipt of a closed TEFRA key case, the TSPC should review the following areas of the case file:

1. Determine whether the case is TEFRA;

2. Determine if Chief Counsel Notice 2009-11 applies. Notice 2009-011 applies when it isn’t clear whether adjustments are computational or affected items. Counsel should be involved when such situations occur. When this occurs, the adjustments are processed using both procedures. If 2009-011 applies, then that must be stated clearly on the closing package. The campus will establish a 7 month assessment date on PCS to ensure the case is worked timely;

3. Tax Matters Partner - Determine if the examiner verified that the TMP is valid and all the notice procedures were correctly followed, as required. The case file should include an explanation if there is an unusual situation;

4. Determine if the TMP NBAP was properly issued to the last known address or partnership return address by certified mail;

5. Verify the linkage procedures were followed;

6. Power of Attorney (POA) - Determine if the Form 2848 is completed correctly.
   • If the POA is not completed correctly, take the necessary steps to get it perfected. If it cannot be perfected, include the POA's copy of any letter issued with the letter sent to the TMP;

7. Statute Extensions - Review any consents to determine they have been prepared and signed correctly. This is important when there is a subsidiary as the TMP, entity TMPs or a tiered situation. If there are any errors, and the normal statute is still open, a new consent can be secured. If the normal statue is gone, consult with Area Counsel on the validity of the consent and if it can be defended;

8. If there is an unusual case closure or other unusual situation, which is not covered in these procedures, consult with the Campus TEFRA/Pass-Through Coordinator on how to proceed;

   Note: Any packages that require mailing should be placed in an "Open by Addressee Only" envelope before mailing. This will help ensure that the package gets to the proper unit intact.

9. Packages adjusting multiple years must have a separate schedule of adjustments and Form 886-A for each year. This is important because partners vary from year to year. Separate schedules eliminate disclosure risks, and saves the campus time.