Sec. 301.6241-1 Definitions.
(a) Definitions. For purposes of subchapter C of chapter 63 of the Internal Revenue Code (Code) –
(1) Adjustment year. The term adjustment year means the partnership taxable year in which–
(i) In the case of an adjustment pursuant to the decision of a court in a proceeding brought under section 6234, such decision becomes final;
(ii) In the case of an administrative adjustment request (AAR) under section 6227, such AAR is filed; or
(iii) In any other case, a notice of final partnership adjustment is mailed under section 6231 or, if the partnership waives the restrictions under section 6232(b) (regarding limitations on assessment), the waiver is executed by the IRS.
(2) Adjustment year partner. The term adjustment year partner means any person who held an interest in a partnership at any time during the adjustment year.
(3) Imputed underpayment. Except as otherwise provided in this paragraph (a)(3), the term imputed underpayment means the amount determined in accordance with section 6225 and the regulations thereunder. In the case of an election under section 6226, the term imputed underpayment means the amount determined in accordance with §301.6226-3(e)(4). In the case of an administrative adjustment request, the term imputed underpayment means the amount determined in accordance with §301.6227-2 or §301.6227-3(c).
(4) Indirect partner. The term indirect partner means any person who has an interest in a partnership through their interest in one or more pass-through partners (as defined in paragraph (a)(5) of this section) or through a wholly-owned entity disregarded as separate from its owner for Federal income tax purposes.
(5) Pass-through partner. The term pass-through partner means a pass-through entity that holds an interest in a partnership. A pass-through entity is a partnership required to file a return under section 6031(a), an S corporation, a trust (other than a wholly-owned trust disregarded as separate from its owner for Federal income tax purposes), and a decedent’s estate. For purposes of this paragraph (a)(5), a pass-through entity is not a wholly-owned entity disregarded as separate from its owner for Federal income tax purposes.
(6) Partnership adjustment.
(i) In general. The term partnership adjustment means any adjustment to a partnership-related item and includes any portion of an adjustment to a partnership-related item.
(ii) Partnership-related item. The term partnership-related item means–
(A) Any item or amount with respect to the partnership (as defined in paragraph (a)(6)(iii) of this section) which is relevant in determining the tax liability of any person under chapter 1 of the Code (chapter 1) (as defined in paragraph (a)(6)(iv) of this section);
(B) Any partner’s distributive share of any such item or amount; and
(C) Any imputed underpayment determined under subchapter C of chapter 63 of the Code (subchapter C of chapter 63).
(iii) Item or amount with respect to the partnership. For purposes of paragraph (a)(6)(ii) of this section, an item or amount is with respect to the partnership if the item or amount is shown or reflected, or required to be shown or reflected, on a return of the partnership under section 6031, the regulations thereunder, or the forms and instructions prescribed by the Internal Revenue Service (IRS) for the partnership’s taxable year or is required to be maintained in the partnership’s books or records. Notwithstanding the previous two sentences, any tax, penalty, addition to tax, or additional amount imposed on the partnership under chapter 1 is an item or amount with respect to the partnership. Items or amounts relating to any transaction with, liability of, or basis in the partnership are with respect to the partnership only if those items or amounts are described in the preceding sentence. An item or amount shown or required to be shown on a return of a person other than the partnership (or in that person’s books and records) that results after application of the Code to a partnership-related item based upon the person’s specific facts and circumstances, including an incorrect application of the Code or taking into account erroneous facts and circumstances of the partner, is not an item or amount with respect to the partnership. For instance, a deduction shown on the return of a partner that results after applying a limitation under the Code (such as section 170(b)) at the partner level to a partnership-related item based on the partner’s facts and circumstances is not an item or amount with respect to the partnership, even though the corresponding expense on the return of the partnership is an item or amount with respect to the partnership. Likewise, an amount on the return of a partner that is after either an incorrect application of a limitation under the Code or based on facts and circumstances of the partner that are erroneous, or both (such as an incorrect application of section 170(b)) at the partner level to a partnership-related item is not an item or amount with respect to the partnership. Similarly, a partner’s adjusted basis is not with respect to the partnership because it is an item or amount shown in the partner’s books or records that results after application of the Code to partnership-related items taking into account the facts and circumstances specific to that partner.
(iv) Relevant in determining the tax liability of any person under chapter 1. For purposes of this section, an item or amount with respect to the partnership is relevant in determining the tax liability of any person under chapter 1 without regard to the application of subchapter C of chapter 63 and without regard to whether such item or amount, or an adjustment to such item or amount, has an effect on the tax liability of any particular person under chapter 1.
(v) Examples of partnership-related items. The term partnership-related item includes--
(A) The character, timing, source, and amount of the partnership’s income, gain, loss, deductions, and credits;
(B) The character, timing, and source of the partnership’s activities;
(C) The character, timing, source, value, and amount of any contributions to, and distributions from, the partnership;
(D) The partnership’s basis in its assets, the character and type of the assets, and the value (or revaluation such as under §1.704-1(b)(2)(iv)(f) or (s) of this chapter) of the assets;
(E) The amount and character of partnership liabilities and any changes to those liabilities from the preceding tax year;
(F) The category, timing, and amount of the partnership’s creditable expenditures;
(G) Any item or amount resulting from a partnership termination;
(H) Any item or amount of the partnership resulting from an election under section 754;
(I) Partnership allocations and any special allocations; and
(J) The identity of a person as a partner in the partnership.
(vi) Examples. The following examples illustrate the provisions of this section. For purposes of these examples, Partnership is subject to the provisions of subchapter C of chapter 63 and all taxpayers are calendar year taxpayers.
(A) Example 1. Partnership enters into a transaction with A to purchase widgets for $100 in taxable year 2020. Partnership pays A $100 for the widgets. Any deduction or expense of the Partnership for the purchase of the widgets is an item or amount with respect to Partnership because it is shown on Partnership’s return and is relevant to determining the liability of any person under chapter 1 pursuant to paragraph (a)(6)(iii) and (iv) of this section. Therefore, the deduction or expense is a partnership-related item. However, the income to A resulting from the transaction with Partnership is not an item or amount with respect to Partnership under paragraph (a)(6)(iii) of this section because although the amount of income relates to a transaction with Partnership and Partnership is required to show a deduction or expense related to the payment to A, the amount of income to A is not shown or required to be shown on Partnership’s return. It is only required to be shown of the return of A, a person other than Partnership and requires determinations about A’s reporting of the item. Accordingly, the amount of income shown, or required to be shown, by A on his return is not a partnership-related item.
(B) Example 2. B loans Partnership $100 in Partnership’s 2020 taxable year. Partnership makes an interest payment to B in 2020 of $5. Partnership’s liability relating to the loan by B to Partnership and the $5 of interest expense paid by the Partnership are items or amounts that are with respect to Partnership because they were shown on Partnership’s return and are relevant in determining the liability of any person under chapter 1 pursuant to paragraphs (a)(6)(iii) and (iv) of this section. However, the treatment of the loan by B and the amount of interest income received by B are not items or amounts with respect to Partnership under paragraph (a)(6)(iii) of this section because although they relate to a transaction with or liability of Partnership and Partnership’s treatment of the loan is shown on Partnership’s return, B’s treatment of the loan and the amount of interest income to B are shown, or required to be shown, on the return of B, a person other than Partnership and require determinations about B’s reporting of the items. Accordingly, the loan as treated by B and the amount of interest income to B is not a partnership-related item.
(C) Example 3. On its partnership return for the 2020 tax year, Partnership reported $200 of non-cash charitable contributions related to its contribution of merchandise. Partnership has two equal partners for the 2020 tax year: C and D, both individuals. Partnership correctly reports $100 in non-cash charitable contributions to both C and D for the 2020 taxable year. On her return for the 2020 taxable year, C erroneously deducts the entire $100 of non-cash charitable contributions, even though C’s deduction for charitable contributions would be limited by section 170(b)(1)(A) to $50 because of C’s income. The $100 of non-cash charitable contribution reported by Partnership to C is a partnership-related item. However, the amount of the deduction taken by C on her return for 2020 and the amount of that deduction allowed after application of the limitation contained in section 170(b)(1)(A) to the $100 in non-cash charitable contributions reported by Partnership to C is not a partnership-related item under paragraph (a)(6)(ii) of this section because it is not with respect to the partnership.
(D) Example 4. The facts are the same as in Example 3 in paragraph (a)(6)(vi)(C) of this section. On his return for the 2020 taxable year, D also deducts the entire $100 in charitable contributions but treats the charitable contributions as if they were cash contributions, instead of non-cash contributions. D does not file a notice of inconsistent treatment under section 6222. If D had treated the $100 in charitable contributions as non-cash contributions, D’s deduction for the charitable contributions from Partnership would have be limited by section 170(b)(1)(A) due to D’s income. D’s deduction of the $100 in charitable contributions is an item or amount shown on D’s return, derives from the charitable contributions reported by the partnership, and is subject to the application of the limitation under section 170(b)(1)(A). Therefore, D’s deduction is not an item or amount with respect to the partnership. The charitable contribution reported by the partnership and its character are items or amounts with respect to the partnership pursuant to paragraph (a)(6)(iii) of this section. An adjustment to the character of the contributions is a partnership adjustment. Because D’s treatment of the charitable contributions is inconsistent with the treatment of that item by Partnership on its partnership return, the IRS may make that partnership adjustment in a proceeding with respect to D and determine and assess any underpayment that results from conforming D’s treatment to the treatment of the contributions by Partnership and applying the limit in section 170(b)(1)(A). See §301.6222-1(b).
(7) Partnership-partner. The term partnership-partner means a partnership that holds an interest in another partnership.
(8) Reviewed year. The term reviewed year means the partnership taxable year to which a partnership adjustment relates.
(9) Reviewed year partner. The term reviewed year partner means any person who held an interest in a partnership at any time during the reviewed year.
(10) Tax attribute. A tax attribute is anything that can affect the amount or timing of a partnership-related item (as defined in paragraph (a)(6)(ii) of this section) or that can affect the amount of tax due in any taxable year. Examples of tax attributes include, but are not limited to, basis and holding period, as well as the character of items of income, gain, loss, deduction, or credit and carryovers and carrybacks of such items.
(b) Applicability date.
(1) In general. Except as provided in paragraph (b)(2) of this section, this section applies to partnership taxable years beginning after December 31, 2017, and ending after August 12, 2018. The third sentence of paragraph (a)(6)(iii) of this section applies to partnership taxable years ending on or after June 21, 2023.
(2) Election under §301.9100-22 in effect. This section applies to any partnership taxable year beginning after November 2, 2015, and before January 1, 2018, for which a valid election under §301.9100-22 is in effect.
[Added by T.D. 9844, 84 FR 6468-6573, Feb. 27, 2019; amended by T.D. 9988, 89 FR 17546-17596, Mar. 11, 2024.]
