Title 26—Internal Revenue--Volume 1
PART 301—PROCEDURE AND ADMINISTRATION
§ 301.6231-1   Notice of proceedings and adjustments.
(a) Notices to which this section applies. In the case of any administrative proceeding under subchapter C of chapter 63 of the Internal Revenue Code (subchapter C of chapter 63), including an administrative proceeding with respect to an administrative adjustment request (AAR) filed by a partnership under section 6227, the following notices must be mailed to the partnership and the partnership representative (as described in section 6223 and § 301.6223-1)—
(1) Notice of any administrative proceeding initiated at the partnership level with respect to an adjustment of any partnership-related item (as defined in § 301.6241-1(a)(6)(ii)) for any partnership taxable year under subchapter C of chapter 63 (notice of administrative proceeding (NAP));
(2) Notice of any proposed partnership adjustment resulting from an administrative proceeding under subchapter C of chapter 63 (notice of proposed partnership adjustment (NOPPA)); and
(3) Notice of any final partnership adjustment resulting from an administrative proceeding under subchapter C of chapter 63 (notice of final partnership adjustment (FPA)).
(b) Time for mailing notices —(1) Notice of proposed partnership adjustment. A NOPPA is timely if it is mailed before the expiration of the period for making adjustments under section 6235(a)(1) (including any extensions under section 6235(b) and any special rules under section 6235(c)).
(2) Notice of final partnership adjustment. An FPA may not be mailed earlier than 270 days after the date on which the NOPPA is mailed unless the partnership agrees, in writing, with the Internal Revenue Service (IRS) to waive the 270-day period. See § 301.6225-2(c)(3)(iii) for the effect of a waiver under this paragraph (b)(2) on the 270-period for requesting a modification under section 6225(c). See § 301.6232-1(d)(2) for the rules regarding a waiver of the limitations on assessment under § 301.6232-1(c).
(c) Last known address. A notice described in paragraph (a) of this section is sufficient if mailed to the last known address of the partnership representative and the partnership (even if the partnership or partnership representative has terminated its existence).
(d) Notice mailed to partnership representative —(1) In general. A notice described in paragraph (a) of this section will be treated as mailed to the partnership representative if the notice is mailed to the partnership representative that is reflected in the IRS records as of the date the letter is mailed.
(2) No partnership representative in effect. In any case in which no partnership representative designation is in effect in accordance with § 301.6223-1(f), a notice described in paragraph (a) of this section mailed to “PARTNERSHIP REPRESENTATIVE” at the last known address of the partnership satisfies the requirements of this section.
(e) Restrictions on additional FPAs after petition filed. The IRS may mail more than one FPA to any partnership for any partnership taxable year. However, except in the case of fraud, malfeasance, or misrepresentation of a material fact, the IRS may not mail an FPA to a partnership with respect to a partnership taxable year after the partnership has filed a timely petition for readjustment under section 6234 with respect to an FPA issued with respect to such partnership taxable year.
(f) Withdrawal of NAP or NOPPA. The IRS may, without consent of the partnership, withdraw any NAP or NOPPA. Except as described in § 301.6223-1(d)(2) and (e)(2), if the IRS withdraws a NAP or NOPPA under this paragraph (f), the NAP or NOPPA is treated as if it were never issued, and the withdrawn NAP or NOPPA has no effect for purposes of subchapter C of chapter 63. For instance, if the IRS withdraws a NAP with respect to a partnership taxable year, the limitation under § 301.6222-1(c)(5) regarding inconsistent treatment, and the prohibition under section 6227(c) on filing an AAR, after the mailing of a NAP no longer applies with respect to such taxable year.
(g) Rescission of FPA. The IRS may, with the consent of the partnership, rescind any FPA. An FPA that is rescinded is not an FPA for purposes of subchapter C of chapter 63, and the partnership cannot bring a proceeding under section 6234 with respect to such FPA.
(h) Applicability date —(1) In general. Except as provided in paragraph (h)(2) of this section, this section applies to partnership taxable years beginning after December 31, 2017, and ending after August 12, 2018.
(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.
§ 301.6231(a)(1)-1   Exception for small partnerships.
(a) In general. For purposes of the exception for small partnerships under section 6231(a)(1)(B), the rules contained in this section shall apply.
(1) 10 or fewer. The 10 or fewer limitation described in section 6231(a)(1)(B)(i) is applied to the number of natural persons, C corporations, and estates of deceased partners that were partners at any one time during the partnership taxable year. Thus, for example, a partnership that at no time during the taxable year had more than 10 partners may be treated as a small partnership even if, because of transfers of interests in the partnership, 11 or more natural persons, C corporations, or estates of deceased partners owned interests in the partnership for some portion of the taxable year. See section 1361(a)(2) for the definition of a C corporation. For purposes of section 6231(a)(1)(B) and this section, a husband and wife (and their estates) are treated as one person.
(2) Pass-thru partner. The exception provided in section 6231(a)(1)(B) does not apply to a partnership for a taxable year if any partner in the partnership during that taxable year is a pass-thru partner as defined in section 6231(a)(9). For purposes of this paragraph (a)(2), an estate shall not be treated as a pass-thru partner.
(3) Determination made annually. The determination of whether a partnership meets the requirements for the exception for small partnerships under section 6231(a)(1)(B) and this paragraph (a) shall be made with respect to each partnership taxable year. Thus, a partnership that does not qualify as a small partnership in one taxable year may qualify as a small partnership in another taxable year if the requirements for the exception under section 6231(a)(1)(B) and this paragraph (a) are met with respect to that other taxable year.
(b) Election to have subchapter C of chapter 63 apply —(1) In general. Any partnership that meets the requirements set forth in section 6231(a)(1)(B) and paragraph (a) of this section (relating to the exception for small partnerships) may elect under paragraph (b)(2) of this section to have the provisions of subchapter C of chapter 63 of the Internal Revenue Code apply with respect to that partnership.
(2) Method of election. A partnership shall make the election described in paragraph (b)(1) of this section by attaching a statement to the partnership return for the first taxable year for which the election is to be effective. The statement shall be identified as an election under section 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. However, 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 the preceding sentence on or before the date which is one year before the date specified in section 6229(a) for the expiration of the period of limitations with respect to that partnership (determined with regard to extensions of that period under section 6229(b)).
(3) Years covered by election. The election shall be effective for the partnership taxable year to which the return relates and all subsequent partnership taxable years unless revoked with the consent of the Commissioner.
(c) Effective date. This section is applicable to partnership taxable years beginning on or after October 4, 2001. For years beginning prior to October 4, 2001, see § 301.6231(a)(1)-1T contained in 26 CFR part 1, revised April 1, 2001.
§ 301.6231(a)(2)-1   Persons whose tax liability is determined indirectly by partnership items.
(a) Spouse filing joint return with individual holding a separate interest —(1) In general. Except as otherwise provided in this paragraph (a), a spouse who files a joint return with an individual holding a separate interest in the partnership shall be treated as a partner for purposes of subchapter C of chapter 63 of the Internal Revenue Code. Thus, the spouse who files a joint return with a partner will be permitted to participate in administrative and judicial proceedings.
(2) Counting rules. A spouse who files a joint return with an individual holding a separate interest in the partnership shall not be counted as a partner for purposes of applying section 6223(b) (relating to special rules for partnerships with more than 100 partners) and section 6231(a)(1)(B) (relating to the exception for small partnerships).
(3) Notice rules —(i) In general. Except as provided in paragraph (a)(3)(ii) of this section, for purposes of subchapter C of chapter 63 of the Internal Revenue Code, a spouse who files a joint return with an individual holding a separate interest in the partnership shall be treated as receiving any notice received by the individual holding the separate interest.
(ii) Spouse identified on partnership return or by statement. Paragraph (a)(3)(i) of this section shall not apply to a spouse who files a joint return with an individual holding a separate interest in the partnership if that spouse—
(A) Is identified on the partnership return; or
(B) Is identified as a partner entitled to notice as provided in § 301.6223(c)-1(b).
(4) Conversion of partnership items —(i) Individual holding a separate interest. A spouse who files a joint return with an individual holding a separate interest in the partnership shall cease to be treated as a partner in the partnership under paragraph (a)(1) of this section upon the conversion of the partnership items of the individual holding the separate interest in the partnership to nonpartnership items pursuant to section 6231(b). If each spouse holds a separate interest in the partnership, the previous sentence shall be applied separately with respect to each partnership interest.
(ii) Spouse who files a joint return with an individual holding a separate interest in the partnership. A spouse who files a joint return with an individual holding a separate interest in the partnership shall cease to be treated as a partner in the partnership under paragraph (a)(1) of this section upon the occurrence of an event that would convert the partnership items of the spouse to nonpartnership items if the spouse were the owner of a separate interest.
(iii) Examples. The following examples illustrate the application of paragraph (a)(4) of this section:
(5) Cross-reference. See § 301.6231(a)(12)-1 for special rules relating to spouses holding a joint interest in a partnership.
(b) Shareholder of C corporation. A shareholder of a C corporation (as defined in section 1361(a)(2)) is not a partner in a partnership merely because the C corporation is a partner in that partnership.
(c) Effective date. This section is applicable to partnership taxable years beginning on or after October 4, 2001. For years beginning prior to October 4, 2001, see § 301.6231(a)(2)-1T contained in 26 CFR part 1, revised April 1, 2001.
§ 301.6231(a)(3)-1   Partnership items.
(a) In general. For purposes of subtitle F of the Internal Revenue Code of 1954, the following items which are required to be taken into account for the taxable year of a partnership under subtitle A of the Code are more appropriately determined at the partnership level than at the partner level and, therefore, are partnership items:
(1) The partnership aggregate and each partner's share of each of the following:
(i) Items of income, gain loss, deduction, or credit of the partnership;
(ii) Expenditures by the partnership not deductible in computing its taxable income (for example, charitable contributions);
(iii) Items of the partnership which may be tax preference items under section 57(a) for any partner;
(iv) Income of the partnership exempt from tax;
(v) Partnership liabilities (including determinations with respect to the amount of the liabilities, whether the liabilities are nonrecourse, and changes from the preceding taxable year); and
(vi) Other amounts determinable at the partnership level with respect to partnership assets, investments, transactions and operations necessary to enable the partnership or the partners to determine—
(A) The investment credit determined under section 46(a);
(B) Recapture under section 47 of the investment credit;
(C) Amounts at risk in any activity to which section 465 applies;
(D) The depletion allowance under section 613A with respect to oil and gas wells; and
(E) The application of section 751 (a) and (b);
(2) Guaranteed payments;
(3) Optional adjustments to the basis of partnership property pursuant to an election under section 754 (including necessary preliminary determinations, such as the determination of a transferee partner's basis in a partnership interest); and
(4) Items relating to the following transactions, to the extent that a determination of such items can be made from determinations that the partnership is required to make with respect to an amount, the character of an amount, or the percentage interest of a partner in the partnership, for purposes of the partnership books and records or for purposes of furnishing information to a partner:
(i) Contributions to the partnership;
(ii) Distributions from the partnership; and
(iii) Transactions to which section 707(a) applies (including the application of section 707(b)).
(b) Factors that affect the determination of partnership items. The term “partnership item” includes the accounting practices and the legal and factual determinations that underlie the determination of the amount, timing, and characterization of items of income, credit, gain, loss, deduction, etc. Examples of these determinations are: The partnership's method of accounting, taxable year, and inventory method; whether an election was made by the partnership; whether partnership property is a capital asset, section 1231 property, or inventory; whether an item is currently deductible or must be capitalized; whether partnership activities have been engaged in with the intent to make a profit for purposes of section 183; and whether the partnership qualifies for the research and development credit under section 30.
(c) Illustrations —(1) In general. This paragraph (c) illustrates the provisions of paragraph (a)(4) of this section. The determinations illustrated in this paragraph (c) that the partnership is required to make are not exhaustive; there may be additional determinations that the partnership is required to make which relate to a transaction listed in paragraph (a)(4) of this section. The critical element is that the partnership needs to make a determination with respect to a matter for the purposes stated; failure by the partnership actually to make a determination (for example, because it does not maintain proper books and records) does not prevent an item from being a partnership item.
(2) Contributions. For purposes of its books and records, or for purposes of furnishing information to a partner, the partnership needs to determine:
(i) The character of the amount received from a partner (for example, whether it is a contribution, a loan, or a repayment of a loan);
(ii) The amount of money contributed by a partner;
(iii) The applicability of the investment company rules of section 721(b) with respect to a contribution; and
(iv) The basis to the partnership of contributed property (including necessary preliminary determinations, such as the partner's basis in the contributed property).
(3) Distributions. For purposes of its books and records, or for purposes of furnishing information to a partner, the partnership needs to determine:
(i) The character of the amount transferred to a partner (for example, whether it is a distribution, a loan, or a repayment of a loan);
(ii) The amount of money distributed to a partner;
(iii) The adjusted basis to the partnership of distributed property; and
(iv) The character of partnership property (for example, whether an item is inventory or a capital asset).
(4) Transactions to which section 707 (a) applies. For purposes of its books and records, the partnership needs to determine:
(i) The amount transferred from the partnership to a partner or from a partner to the partnership in any transaction to which section 707(a) applies;
(ii) The character of such an amount (for example, whether or not it is a loan; in the case of amounts paid over time for the purchase of an asset, what portion is interest); and
(iii) The percentage of the capital interests and profits interests in the partnership owned by each partner.
(d) Effective date. This section shall apply with respect to partnership taxable years beginning after September 3, 1982. This section shall also apply with respect to any partnership taxable year ending after September 3, 1982, if with respect to that year there is an agreement entered into pursuant to section 407(a)(3) of the Tax Equity and Fiscal Responsibility Act of 1982.
§ 301.6231(a)(5)-1   Definition of affected item.
(a) In general. The term affected item means any item to the extent such item is affected by a partnership item. It includes items unrelated to the items reflected on the partnership return (for example, an item, such as the threshold for the medical expense deduction under section 213, that varies if there is a change in an individual partner's adjusted gross income).
(b) Basis in a partner's partnership interest. The basis of a partner's partnership interest is an affected item to the extent it is not a partnership item.
(c) At-risk limitation. The application of the at-risk limitation under section 465 to a partner with respect to a loss incurred by a partnership is an affected item to the extent it is not a partnership item.
(d) Passive losses. The application of the passive loss rules under section 469 to a partner with respect to a loss incurred by a partnership is an affected item to the extent it is not a partnership item.
(e) Penalty, addition to tax, or additional amount —(1) In general. The term affected item includes any penalty, addition to tax, or additional amount provided by subchapter A of chapter 68 of the Internal Revenue Code of 1986 to the extent provided in this paragraph (e).
(2) Penalty, addition to tax, or additional amount without floor. If a penalty, addition to tax, or additional amount that does not contain a floor (that is, a threshold amount of underpayment or understatement necessary before the imposition of the penalty, addition to tax, or additional amount) is imposed on a partner as the result of an adjustment to a partnership item, the term affected item shall include the penalty, addition to tax, or additional amount computed with reference to the portion of the underpayment that is attributable to the partnership item adjustment(s) to which the penalty, addition to tax, or additional amount applies.
(3) Penalty, addition to tax, or additional amount containing floor —(i) Floor exceeded prior to adjustment. If a partner would have been subject to a penalty, addition to tax, or additional amount that contains a floor in the absence of an adjustment to a partnership item (that is, the partner's understatement or underpayment exceeded the floor even without an adjustment to a partnership item) the term affected item shall include only the portion of the penalty, addition to tax, or additional amount computed with reference to the partnership item (or affected item) adjustments.
(ii) Floor not exceeded prior to adjustment. In the case of a penalty, addition to tax, or additional amount that contains a floor, if the taxpayer's understatement or underpayment does not exceed the floor prior to an adjustment to a partnership item but does so after such adjustment, the term affected item shall include the penalty, addition to tax, or additional amount computed with reference to the entire underpayment or understatement to which the penalty, addition to tax, or additional amount applies.
(4) Examples. The provisions of this paragraph (e) may be illustrated by the following examples:
(f) Effective date. This section is applicable to partnership taxable years beginning on or after October 4, 2001. For years beginning prior to October 4, 2001, see § 301.6231(a)(5)-1T contained in 26 CFR part 1, revised April 1, 2001.
§ 301.6231(a)(6)-1   Computational adjustments.
(a) Changes in a partner's tax liability —(1) In general. A change in the tax liability of a partner to properly reflect the treatment of a partnership item under subchapter C of chapter 63 of the Internal Revenue Code is made through a computational adjustment. A computational adjustment includes a change in tax liability that reflects a change in an affected item where that change is necessary to properly reflect the treatment of a partnership item, or any penalty, addition to tax, or additional amount that relates to an adjustment to a partnership item. However, if a change in a partner's tax liability cannot be made without making one or more partner-level determinations, that portion of the change in tax liability attributable to the partner-level determinations shall be made under the deficiency procedures (as described in subchapter B of chapter 63 of the Internal Revenue Code), except for any penalty, addition to tax, or additional amount that relates to an adjustment to a partnership item.
(2) Affected items that do not require partner-level determinations. Changes in a partner's tax liability with respect to affected items that do not require partner-level determinations (such as the threshold amount of medical deductions under section 213 that changes as the result of determinations made at the partnership level) are computational adjustments that are directly assessed. When making computational adjustments, the Internal Revenue Service may assume that amounts the partner reported on the partner's individual return include all amounts reported to the partner by the partnership (on the Schedule K-1s attached to the partnership's original return), absent contrary notice to the Internal Revenue Service (for example, a “Notice of Inconsistent Treatment” pursuant to § 301.6222(a)-2(c)). Such an assumption by the Internal Revenue Service does not constitute a partner-level determination. Moreover, substituting redetermined partnership items for the partner's previously reported partnership items (including partnership items included in carryover amounts) does not constitute a partner-level determination where the Internal Revenue Service otherwise accepts, for the sole purpose of determining the computational adjustment, all nonpartnership items (including, for example, nonpartnership item components of carryover amounts) as reported.
(3) Affected items that require partner-level determinations. Changes in a partner's tax liability with respect to affected items that require partner-level determinations (such as a partner's at-risk amount to the extent it depends upon the source from which the partner obtained the funds that the partner contributed to the partnership) are computational adjustments that are subject to the deficiency procedures. Notwithstanding the preceding sentence, any penalty, addition to tax, or additional amount that relates to an adjustment to a partnership item is not subject to the deficiency procedures, but rather may be directly assessed as part of the computational adjustment that is made following the partnership proceeding, based on determinations in that proceeding, regardless of whether any partner-level determinations may be required.
(b) Interest. A computational adjustment includes any interest due with respect to any underpayment or overpayment of tax attributable to adjustments to reflect properly the treatment of partnership items.
(c) Effective date. This section is applicable to partnership taxable years beginning on or after October 4, 2001. For years beginning prior to October 4, 2001, see § 301.6231(a)(6)-1T contained in 26 CFR part 1, revised April 1, 2001.
§ 301.6231(a)(7)-1   Designation or selection of tax matters partner.
(a) In general. A partnership may designate a partner as its tax matters partner for a specific taxable year only as provided in this section. Similarly, the designation of a partner as the tax matters partner for a specific taxable year may be terminated only as provided in this section. If a partnership does not designate a general partner as the tax matters partner for a specific taxable year, or if the designation is terminated without the partnership designating another general partner as the tax matters partner, the tax matters partner is the partner determined under this section.
(b) Person who may be designated tax matters partner —(1) General requirement. A person may be designated as the tax matters partner of a partnership for a taxable year only if that person—
(i) Was a general partner in the partnership at some time during the taxable year for which the designation is made; or
(ii) Is a general partner in the partnership as of the time the designation is made.
(2) Limitation on designation of tax matters partner who is not a United States person. If any United States person would be eligible under paragraph (a) of this section to be designated as the tax matters partner of a partnership for a taxable year, no person who is not a United States person may be designated as the tax matters partner of the partnership for that year without the consent of the Commissioner. For the definition of United States person, see section 7701(a)(30).
(c) Designation of tax matters partner at time partnership return is filed. The partnership may designate a tax matters partner for a partnership taxable year on the partnership return for that taxable year in accordance with the instructions for that form.
(d) Certification by current tax matters partner of selection of successor. If a partner properly designated as the tax matters partner of a partnership for a partnership taxable year under this section certifies that another partner has been selected as the tax matters partner of the partnership for that taxable year, that other partner is thereby designated as the tax matters partner for that year. The current tax matters partner shall make the certification by filing with the service center with which the partnership return is filed a statement that—
(1) Identifies the partnership, the partner filing the statement, and the successor tax matters partner by name, address, and taxpayer identification number;
(2) Specifies the partnership taxable year to which the designation relates;
(3) Declares that the partner filing the statement has been properly designated as the tax matters partner of the partnership for the partnership taxable year and that that designation is in effect immediately before the filing of the statement;
(4) Certifies that the other named partner has been selected as the tax matters partner of the partnership for that taxable year in accordance with the partnership's procedure for making that selection; and
(5) Is signed by the partner filing the statement.
(e) Designation by general partners with majority interest. The partnership may designate a tax matters partner for a partnership taxable year at any time after the filing of a partnership return for that taxable year by filing a statement with the service center with which the partnership return was filed. The statement shall—
(1) Identify the partnership and the designated partner by name, address, and taxpayer identification number;
(2) Specify the partnership taxable year to which the designation relates;
(3) Declare that it is a designation of a tax matters partner for the taxable year specified; and
(4) Be signed by persons who were general partners at the close of the year and were shown on the return for that year to hold more than 50 percent of the aggregate interest in partnership profits held by all general partners as of the close of that taxable year. For purposes of this paragraph (e)(4), all limited partnership interests held by general partners shall be included in determining the aggregate interest in partnership profits held by such general partners.
(f) Designation by partners with majority interest under certain circumstances —(1) In general. A tax matters partner may be designated for a partnership taxable year under this paragraph (f) only if, at the time the designation is made, each partner who was a general partner at the close of such partnership taxable year is described in one or more of paragraphs (f)(1)(i) through (iv) of this section as follows:
(i) The general partner is dead, or, if the general partner is an entity, has been liquidated or dissolved;
(ii) The general partner has been adjudicated by a court of competent jurisdiction to be no longer capable of managing his or her person or estate;
(iii) The general partner's partnership items have become nonpartnership items under section 6231(b); or
(iv) The general partner is no longer a partner in the partnership.
(2) Method of making designation. A tax matters partner for a partnership taxable year may be designated under this paragraph (f) at any time after the filing of the partnership return for such taxable year by filing a written statement with the service center with which the partnership return was filed. The statement shall—
(i) Identify the partnership and the designated tax matters partner by name, address, and taxpayer identification number;
(ii) Specify the partnership taxable year to which the designation relates;
(iii) Declare that it is a designation of a tax matters partner for the partnership taxable year specified; and
(iv) Be signed by persons who were partners at the close of such taxable year and were shown on the return for that year to hold more than 50 percent of the aggregate interest in partnership profits held by all partners as of the close of such taxable year.
(g) Designation of alternate tax matters partner. If an individual is designated as the tax matters partner of a partnership under paragraph (c), (d), (e), or (f) of this section, the document by which that individual is designated may also designate an alternate tax matters partner who will become tax matters partner upon the occurrence of one or more of the events described in paragraph (l)(1) (i) or (ii) of this section. The person designated as the alternate tax matters partner becomes the tax matters partner as of the time the designation of the tax matters partner is terminated under paragraph (l)(1) (i) or (ii) of this section. The designation of a person as the alternate tax matters partner shall have no effect in any other case.
(h) Prior designations superseded. A designation of a tax matters partner for a partnership taxable year under paragraphs (d), (e), or (f) of this section shall supersede all prior designations of a tax matters partner for that year, including a prior designation of an alternate tax matters partner under paragraph (g) of this section.
(i) Resignation of designated tax matters partner. A person designated as the tax matters partner of a partnership under this section may resign at any time by a written statement to that effect. The statement shall specify the partnership taxable year to which the resignation relates and shall identify the partnership and the tax matters partner by name, address, and taxpayer identification number. The statement shall also be signed by the resigning tax matters partner and shall be filed with the service center with which the partnership return was filed.
(j) Revocation of designation. The partnership may revoke the designation of the tax matters partner for a partnership taxable year at any time after the filing of a partnership return for that taxable year by filing a statement with the service center with which the partnership return was filed. The statement shall—
(1) Identify by name, address, and taxpayer identification number the partnership and the general partner whose designation as tax matters partner is being revoked;
(2) Specify the partnership taxable year to which the revocation relates;
(3) Declare that it is a revocation of a designation of the tax matters partner for the taxable year specified; and
(4) Be signed by the persons described in paragraph (e)(4) of this section, or, if at the time that the revocation is made, each partner who was a general partner at the close of the partnership taxable year to which the revocation relates is described in one or more of paragraphs (f)(1) (i) through (iv) of this section, by the persons described in paragraph (f)(2)(iv) of this section.
(k) When designation, etc., becomes effective —(1) In general. Except as otherwise provided in paragraph (k)(2) of this section, a designation, resignation, or revocation provided for in this section becomes effective on the day that the statement required by the applicable paragraph of this section is filed.
(2) Notice of proceeding mailed. If a notice of beginning of an administrative proceeding with respect to a partnership taxable year is mailed before the date on which a statement of designation, resignation, or revocation provided for in this section with respect to that taxable year is filed, the Service is not required to give effect to such designation, resignation, or revocation until 30 days after the statement is filed.
(l) Termination of designation —(1) In general. A designation of a tax matters partner for a taxable year under this section shall remain in effect until—
(i) The death of the designated tax matters partner;
(ii) An adjudication by a court of competent jurisdiction that the individual designated as the tax matters partner is no longer capable of managing the individual's person or estate;
(iii) The liquidation or dissolution of the tax matters partner, if the tax matters partner is an entity;
(iv) The partnership items of the tax matters partner become nonpartnership items under section 6231(c) (relating to special enforcement areas); or
(v) The day on which—
(A) The resignation of the tax matters partner under paragraph (i) of this section;
(B) A subsequent designation under paragraph (d), (e), or (f) of this section; or
(C) A revocation of the designation under paragraph (j) of this section becomes effective.
(2) Actions by the tax matters partner before termination of designation. The termination of the designation of a partner as the tax matters partner under paragraph (l)(1) of this section does not affect the validity of any action taken by that partner as tax matters partner before the designation is terminated. For example, if that tax matters partner had previously consented to an extension of the period for assessments under section 6229(b)(1)(B), that extension remains valid even after termination of the designation.
(m) Tax matters partner where no partnership designation made —(1) In general. The tax matters partner for a partnership taxable year shall be determined under this paragraph (m) if—
(i) The partnership has not designated a tax matters partner under this section for that taxable year; or
(ii) The partnership has designated a tax matters partner under this section for that taxable year, that designation has been terminated under paragraph (l)(1) of this section, and the partnership has not made a subsequent designation under this section for that taxable year.
(2) General partner having the largest profits interest is the tax matters partner. The tax matters partner for any partnership taxable year to which this paragraph (m) applies is the general partner having the largest profits interest in the partnership at the close of that taxable year (or where there is more than one such partner, the one of such partners whose name would appear first in an alphabetical listing). For purposes of this paragraph (m)(2), all limited partnership interests held by a general partner shall be included in determining that general partner's profits interest in the partnership. For purposes of this paragraph (m)(2), the general partner with the largest profits interest is determined 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 determination is being made.
(3) Termination of designation. A designation of a tax matters partner for a partnership taxable year under this paragraph (m) shall remain in effect until the earlier of the occurrence of one or more of the events described in paragraphs (l)(1) (i) through (iv) of this section or the day on which a designation under paragraph (d), (e), or (f) of this section becomes effective. If a designation of a tax matters partner for a partnership taxable year is terminated under this paragraph (m)(3) and the partnership has not subsequently designated a tax matters partner for that taxable year under paragraph (d), (e), or (f) of this section, the tax matters partner for that taxable year shall be determined under paragraph (m)(2) of this section, and, for purposes of applying paragraph (m)(2) of this section, the general partner whose designation was so terminated shall be treated as having no profits interest in the partnership for that taxable year.
(n) Selection of tax matters partner by Commissioner when impracticable to apply the largest-profits-interest rule. If the partnership has not designated a tax matters partner under this section for the taxable year and it is impracticable (as determined under paragraph (o) of this section) to apply the largest-profits-interest rule of paragraph (m)(2) of this section, the Commissioner will select a tax matters partner as described in paragraph (p) of this section.
(o) Impracticability of largest-profits-interest rule. It is impracticable to apply the largest-profits-interest rule of paragraph (m)(2) of this section if, on the date the rule is applied, any one of the following three conditions is met:
(1) General partner with the largest profits interest is not apparent. The general partner with the largest profits interest is not apparent from the Schedules K-1 and is not otherwise readily determinable.
(2) Each general partner is deemed to have no profits interest in the partnership. Each general partner is deemed to have no profits interest in the partnership under paragraph (m)(3) of this section (concerning termination of a designation under the largest-profits-interest rule) because of the occurrence of one or more of the events described in paragraphs (l)(1) (i) through (iv) of this section (involving death, adjudication of incompetency, liquidation, and conversion of partnership items to nonpartnership items).
(3) General partner with the largest profits interest is disqualified. The general partner with the largest profits interest determined under paragraph (m)(2) of this section—
(i) Has been notified of suspension from practice before the Internal Revenue Service;
(ii) Is incarcerated;
(iii) Is residing outside the United States, its possessions, or territories; or
(iv) Cannot be located or cannot perform the functions of a tax matters partner for any reason, except that lack of cooperation with the Internal Revenue Service by the general partner with the largest profits interest is not a basis for finding that the partner cannot perform the functions of a tax matters partner.
(p) Commissioner's selection of the tax matters partner —(1) When the general partner with the largest profits interest is not apparent. If it is impracticable under paragraph (o)(1) of this section to apply the largest-profits-interest rule of paragraph (m)(2) of this section, the Commissioner will select (in accordance with the notification procedures set forth in paragraph (r) of this section) as the tax matters partner any person who was a general partner at any time during the taxable year under examination.
(2) When each general partner is deemed to have no profits interest in the partnership. If it is impracticable under paragraph (o)(2) of this section to apply the largest-profits-interest rule of paragraph (m)(2) of this section, the Commissioner will select a partner (including a general or limited partner) as the tax matters partner in accordance with the criteria set forth in paragraph (q) of this section. The Commissioner will notify both the partner selected and the partnership of the selection, effective as of the date specified in the notice. For regulations applicable on or after January 26, 1999 (reflecting statutory changes made effective July 22, 1998) and before January 25, 2002, see § 301.6231(a)(7)-1T(p)(2).
(2) When each general partner is deemed to have no profits interest in the partnership. If it is impracticable under paragraph (o)(2) of this section to apply the largest-profits-interest rule of paragraph (m)(2) of this section, the Commissioner will select a partner (including a general or limited partner) as the tax matters partner in accordance with the criteria set forth in paragraph (q) of this section. The Commissioner will notify, within 30 days of the selection, the partner selected, the partnership, and all partners required to receive notice under section 6223(a) of the selection of the tax matters partner, effective as of the date specified in the notice.
(3) When the general partner with the largest profits interest is disqualified —(i) In general. Except as otherwise provided in paragraph (p)(3)(ii) of this section, if it is impracticable under paragraph (o)(3) of this section to apply the largest-profits-interest rule of paragraph (m)(2) of this section, the Commissioner will treat each general partner who fits the criteria contained in paragraph (o)(3) of this section as having no profits interest in the partnership for the taxable year and will select (in accordance with the notification procedures set forth in paragraph (r) of this section) a tax matters partner from the remaining persons who were general partners at any time during the taxable year.
(ii) Partner selected if no general partner may be selected. If all general partners during the taxable year either are treated as having no profits interest in the partnership for the taxable year under paragraph (m)(3) of this section (concerning termination of a designation under the largest-profits-interest rule) or are described in paragraph (o)(3) of this section (general partner with the largest profits interest is disqualified), the Commissioner will select a partner (including a general or limited partner) as the tax matters partner in accordance with the criteria set forth in paragraph (q) of this section. The Commissioner will notify both the partner selected and the partnership of the selection, effective as of the date specified in the notice.
(q) Criteria for selecting a partner as tax matters partner —(1) In general. The Commissioner will select a partner as the tax matters partner under paragraph (p) (2) or (3)(ii) of this section only if the partner was a partner in the partnership at the close of the taxable year under examination.
(2) Criteria to be considered. The Commissioner may consider the following criteria in selecting a partner as the tax matters partner:
(i) The general knowledge of the partner in tax matters and the administrative operation of the partnership.
(ii) The partner's access to the books and records of the partnership.
(iii) The profits interest held by the partner.
(iv) The views of the partners having a majority interest in the partnership regarding the selection.
(v) Whether the partner is a partner of the partnership at the time the tax-matters-partner selection is made.
(vi) Whether the partner is a United States person (within the meaning of section 7701(a)(30)).
(3) Limited restriction on subsequent designation of a tax matters partner by the partnership. For purposes of paragraphs (p) (2) and (3)(ii) of this section, the partnership cannot designate a partner who is not a general partner to serve as tax matters partner in lieu of a partner selected by the Commissioner.
(r) Notification of partnership —(1) In general. If the Commissioner selects a tax matters partner under the provisions of paragraph (p)(1) or (p)(3)(i) of this section, the Commissioner will notify, within 30 days of the selection, the partner selected, the partnership, and all partners required to receive notice under section 6223(a) of the selection of the tax matters partner, effective as of the date specified in the notice.
(2) Limited opportunity for partnership to designate the tax matters partner. (i) Before the Commissioner selects a tax matters partner under paragraphs (p) (1) and (3)(i) of this section, the Commissioner will notify the partnership by mail that, after 30 days from the date of the notice, the Commissioner will make a determination that it is impracticable to apply the largest-profits-interest rule of paragraph (m)(2) of this section and will select the tax matters partner unless a prior designation is made by the partnership. This delay in making the determination will permit the partnership to designate a tax matters partner under paragraph (e) of this section (designation by general partners with a majority interest) or paragraph (f) of this section (designation by partners with a majority interest under certain circumstances), thereby avoiding a selection made by the Commissioner.
(ii) During the 30-day period and prior to a tax-matters-partner designation by the partnership, the Commissioner will communicate with the partnership by sending all correspondence or notices to “The Tax Matters Partner” in care of the partnership at the partnership's address.
(iii) Any subsequent designation of a tax matters partner by the partnership after the 30-day period will become effective as provided under paragraph (k)(2) of this section (concerning designations made after a notice of beginning of administrative proceeding is mailed).
(s) Effective date. This section applies to all designations, selections, and terminations of a tax matters partner occurring on or after December 23, 1996, except for paragraphs (p)(2) and (r)(1), that are applicable on or after October 4, 2001.
§ 301.6231(a)(7)-2   Designation or selection of tax matters partner for a limited liability company (LLC).
(a) In general. Solely for purposes of applying section 6231(a)(7) and § 301.6231(a)(7)-1 to an LLC, only a member-manager of an LLC is treated as a general partner, and a member of an LLC who is not a member-manager is treated as a partner other than a general partner.
(b) Definitions —(1) LLC. Solely for purposes of this section, LLC means an organization—
(i) Formed under a law that allows the limitation of the liability of all members for the organization's debts and other obligations within the meaning of § 301.7701-3(b)(2)(ii); and
(ii) Classified as a partnership for Federal tax purposes.
(2) Member. Solely for purposes of this section, member means any person who owns an interest in an LLC.
(3) Member-manager. Solely for purposes of this section, member-manager means a member of an LLC who, alone or together with others, is vested with the continuing exclusive authority to make the management decisions necessary to conduct the business for which the organization was formed. Generally, an LLC statute may permit the LLC to choose management by one or more managers (whether or not members) or by all of the members. If there are no elected or designated member-managers (as so defined in this paragraph (b)(3)) of the LLC, each member will be treated as a member-manager for purposes of this section.
(c) Effective date. This section applies to all designations, selections, and terminations of a tax matters partner of an LLC occurring on or after December 23, 1996. Any other reasonable designation or selection of a tax matters partner of an LLC is binding for periods prior to December 23, 1996.
§ 301.6231(a)(12)-1   Special rules relating to spouses.
(a) Spouses holding a joint interest —(1) In general. Except as otherwise provided in this section, spouses holding a joint interest in a partnership shall be treated as separate partners for purposes of subchapter C of chapter 63 of the Internal Revenue Code. Thus, both spouses may participate in administrative and judicial proceedings. The term joint interest includes tenancies in common, joint tenancies, tenancies by the entirety, and community property.
(2) Identification of joint interest. For purposes of this section, an interest shall be treated as a joint interest in a partnership only if both spouses are identified on the partnership return or are identified as partners entitled to notice as provided in § 301.6223(c)-1(b).
(3) Failure to identify both spouses as partners. If both spouses are not identified as set forth in paragraph (a)(2) of this section, then the partnership interest shall be treated as separately owned by the identified spouse.
(4) Example. The following example illustrates the application of paragraph (a)(3) of this section:
(b) Notice and counting rules —(1) In general. Except as provided in paragraph (b)(2) of this section, for purposes of applying section 6223 (relating to notice to partners of proceedings) and section 6231(a)(1)(B) (relating to the exception for small partnerships), spouses holding a joint interest in a partnership shall be treated as one partner. Except as provided in paragraph (b)(2) of this section, the Internal Revenue Service or the tax matters partner may send any required notice to either spouse.
(2) Identified spouse entitled to notice. For purposes of applying section 6223 (relating to notice to partners of proceeding) for a partnership taxable year, an individual who holds a joint interest in a partnership with a spouse who is entitled to notice under section 6223 shall be entitled to receive separate notice under section 6223 if such individual—
(i) Is identified as a partner on the partnership return for that taxable year; or
(ii) Is identified as a partner entitled to notice as provided in § 301.6223(c)-1(b).
(c) Conversion of partnership items —(1) In general. If spouses holding a joint interest in a partnership are treated as separate partners under this section, then section 6231(b) (relating to the conversion of partnership items) shall be applied separately to each spouse.
(2) Example. The following example illustrates the application of paragraph (c) of this section:
(d) Cross-reference. See § 301.6231(a)(2)-1(a) for special rules relating to spouses who file joint returns with individuals holding a separate interest in a partnership.
(e) Effective date. This section is applicable to partnership taxable years beginning on or after October 4, 2001. For years beginning prior to October 4, 2001, see § 301.6231(a)(12)-1T contained in 26 CFR part 1, revised April 1, 2001.
§ 301.6231(c)-1   Special rules for certain applications for tentative carryback and refund adjustments based on partnership losses, deductions, or credits.
(a) Application subject to this section. This section applies in the case of an application under section 6411 (relating to tentative carryback and refund adjustments) based on losses, deductions, or credits of a partnership if the Commissioner, or the Commissioner's delegate, determines, after review of the available relevant information, that it is highly likely that a person described in section 6700(a)(1) made, with respect to the partnership—
(1) A gross valuation overstatement; or
(2) A false or fraudulent statement with respect to the tax benefits to be secured by reason of holding an interest in the partnership that would be subject to a penalty under section 6700 (relating to penalty for promoting abusive tax shelters, etc.). This section applies only with respect to an application based upon the original reporting on the partner's income tax return of partnership losses, deductions, or credits. Thus, this section does not apply to a request for administrative adjustment under section 6227 through which a partner seeks to change the partner's reporting of partnership items on the partner's income tax return (or on an earlier request for administrative adjustment).
(b) Determination of special enforcement area. In the case of an application under section 6411 described in paragraph (a) of this section, precluding an assessment under section 6225 that would be permitted under section 6213(b)(3) (relating to assessments arising out of tentative carryback or refund adjustments) with respect to any amount applied, credited, or refunded as a result of the application may encourage the proliferation of abusive tax shelter partnerships and make the eventual collection of taxes due more difficult. Consequently, the Secretary hereby determines that such applications present special enforcement considerations within the meaning of section 6231(c)(1)(E).
(c) Assessment permitted under section 6213(b)(3). Notwithstanding section 6225 (relating to restrictions on assessment with respect to partnership items), an assessment that would be permitted under section 6213(b)(3) with respect to any amount applied, credited, or refunded as a result of an application described in paragraph (a) of this section may be made before there is a final partnership-level determination with respect to the losses, deductions, or credits on which the application is based. As provided in section 6213(b)(1), the Internal Revenue Service shall mail notice of any such assessment to the partner filing the application. The notice shall also inform the partner of the partner's limited right to elect to treat items as nonpartnership items as provided in paragraph (d) of this section.
(d) Limited right to elect to treat items as nonpartnership items —(1) In general. A partner to whom the Internal Revenue Service mails a notice of suspension of action on a refund claim under paragraph (c) of this section may elect in accordance with this paragraph (d) to have all partnership items for the partnership taxable year in which the losses, deductions, or credits at issue arose treated as nonpartnership items.
(2) Time and place of making election. The election shall be made by filing a statement with the Internal Revenue Service office that mailed the notice of suspension. The statement may be filed at any time—
(i) After the date which is one year after the date on which the partnership return was filed for the partnership taxable year in which the items at issue arose; and
(ii) Before the date on which the Internal Revenue Service mails to the tax matters partner the notice of final partnership administrative adjustment for the partnership taxable year in which the items at issue arose. For purposes of this paragraph (d)(2), a partnership return filed before the last day prescribed by law for its filing (determined without regard to extensions) shall be treated as filed on the last day.
(3) Contents of the statement. The statement shall—
(i) Be clearly identified as an election to have partnership items treated as nonpartnership items because of notification of an assessment under section 6213(b)(3);
(ii) Identify the partnership by name, address, and taxpayer identification number;
(iii) Identify the partner making the election by name, address, and taxpayer identification number;
(iv) Specify the partnership taxable year to which the election applies; and
(v) Be signed by the partner making the election.
(e) Effective date. This section is applicable to partnership taxable years beginning on or after October 4, 2001. For years beginning prior to October 4, 2001, see § 301.6231(c)-1T contained in 26 CFR part 1, revised April 1, 2001.
§ 301.6231(c)-2   Special rules for certain refund claims based on losses, deductions, or credits from abusive tax shelter partnerships.
(a) Claims subject to this section. This section applies in the case of a claim for credit or refund based on losses, deductions or credits of a partnership if the Commissioner, or the Commissioner's delegate, determines, after review of available relevant information, that it is highly likely that a person described in section 6700(a)(1) made, with respect to the partnership—
(1) A gross valuation overstatement; or
(2) A false or fraudulent statement with respect to the tax benefits to be secured by reason of holding an interest in the partnership that would be subject to a penalty under section 6700 (relating to penalty for promoting abusive tax shelters, etc.). This section applies only with respect to a claim that is based upon the partner's original reporting on the partner's income tax return of partnership losses, deductions, or credits. Thus, this section does not apply to a request for administrative adjustment under section 6227 through which a partner seeks to change the partner's reporting of partnership items on the partner's income tax return (or on an earlier request for administrative adjustment). For purposes of this section, any income tax return requesting a credit or refund shall be treated as a claim for a credit or refund.
(b) Determination of special enforcement area. Granting a claim for credit or refund described in paragraph (a) of this section may encourage the proliferation of abusive tax shelter partnerships and make the eventual collection of taxes more difficult. Consequently, the Secretary hereby determines that such claims present special enforcement considerations within the meaning of section 6231(c)(1)(E).
(c) Action on refund claims suspended. In the case of a claim described in paragraph (a) of this section, the Internal Revenue Service may mail to the partner filing the claim a notice stating that no action will be taken on the partner's claim until the completion of the partnership-level proceedings. The notice shall also inform the partner of the partner's limited right to elect to treat items as nonpartnership items as provided in paragraph (d) of this section.
(d) Limited right to elect to treat items as nonpartnership items —(1) In general. A partner to whom the Internal Revenue Service mails a notice of suspension under paragraph (c) of this section may elect in accordance with this paragraph (d) to have all partnership items for the partnership taxable year in which the losses, deductions, or credits at issue arose treated as nonpartnership items.
(2) Time and place of making election. The election shall be made by filing a statement with the Internal Revenue Service office that mailed the notice of suspension. The statement may be filed at any time—
(i) After the date which is one year after the date on which the partnership return was filed for the partnership taxable year in which the items at issue arose; and
(ii) Before the date on which the Internal Revenue Service mails to the tax matters partner the notice of final partnership administrative adjustment for the partnership taxable year in which the items at issue arose. For purposes of this paragraph (d)(2), a partnership return filed before the last day prescribed by law for its filing (determined without regard to extensions) shall be treated as filed on the last day.
(3) Contents of the statement. The statement shall—
(i) Be clearly identified as an election to have partnership items treated as nonpartnership items because of notification of suspension of action on a refund claim;
(ii) Identify the partnership by name, address, and taxpayer identification number;
(iii) Identify the partner making the election by name, address, and taxpayer identification number;
(iv) Specify the partnership taxable year to which the election applies; and
(v) Be signed by the partner making the election.
(e) Effective date. This section applies with respect to any claim described in paragraph (a) of this section that is filed on or after October 4, 2001. For claims filed prior to October 4, 2001, see § 301.6231(c)-2T contained in 26 CFR part 1, revised April 1, 2001.
§ 301.6231(c)-3   Limitation on applicability of §§ 301.6231(c)-4 through 301.6231(c)-8.
(a) In general. A provision of §§ 301.6231(c)-4 through 301.6231(c)-8 shall not apply with respect to partnership items arising in a partnership taxable year if, as of the date on which those items would otherwise begin to be treated as nonpartnership items under that provision—
(1) A notice of final partnership administrative adjustment with respect to those items has been mailed to the tax matters partner; and
(2) Either—
(i) The period during which an action with respect to that final partnership administrative adjustment may be brought under section 6226 has expired and no such action has been brought; or
(ii) The decision of the court in an action brought under section 6226 with respect to that final partnership administrative adjustment has become final.
(b) Effective date. This section is applicable to partnership taxable years beginning on or after October 4, 2001. For years beginning prior to October 4, 2001, see § 301.6231(c)-3T contained in 26 CFR part 1, revised April 1, 2001.
§ 301.6231(c)-4   Termination and jeopardy assessment.
(a) In general. The treatment of items as partnership items with respect to a partner against whom an assessment of income tax under section 6851 (termination assessment) or section 6861 (jeopardy assessment) is made will interfere with the effective and efficient enforcement of the internal revenue laws. Accordingly, partnership items of such a partner arising in any partnership taxable year ending with or within the partner's taxable year for which an assessment of income tax under section 6851 or 6861 is made shall be treated as nonpartnership items as of the moment before such assessment is made.
(b) Effective date. This section is applicable to partnership taxable years beginning on or after October 4, 2001. For years beginning prior to October 4, 2001, see § 301.6231(c)-4T contained in 26 CFR part 1, revised April 1, 2001.
§ 301.6231(c)-5   Criminal investigations.
(a) In general. The treatment of items as partnership items with respect to a partner under criminal investigation for violation of the internal revenue laws relating to income tax will interfere with the effective and efficient enforcement of the internal revenue laws. Accordingly, partnership items of such a partner arising in any partnership taxable year ending on or before the last day of the latest taxable year of the partner to which the criminal investigation relates shall be treated as nonpartnership items as of the date on which the partner is notified that the partner is the subject of a criminal investigation and written notification is sent by the Internal Revenue Service that the partner's partnership items shall be treated as nonpartnership items. The partnership items of a partner who is notified that the partner is the subject of a criminal investigation shall not be treated as nonpartnership items under this section unless and until such partner is sent written notification from the Internal Revenue Service of such treatment.
(b) Effective date. This section is applicable to partnership taxable years beginning on or after October 4, 2001. For years beginning prior to October 4, 2001, see § 301.6231(c)-5T contained in 26 CFR part 1, revised April 1, 2001.
§ 301.6231(c)-6   Indirect method of proof of income.
(a) In general. The treatment of items as partnership items with respect to a partner whose taxable income is determined by use of an indirect method of proof of income will interfere with the effective and efficient enforcement of the internal revenue laws. Accordingly, partnership items of such a partner arising in any partnership taxable year ending on or before the last day of the taxable year of the partner for which a deficiency notice based upon an indirect method of proof of income is mailed to the partner shall be treated as nonpartnership items as of the date on which that deficiency notice is mailed to the partner.
(b) Effective date. This section is applicable to partnership taxable years beginning on or after October 4, 2001. For years beginning prior to October 4, 2001, see § 301.6231(c)-6T contained in 26 CFR part 1, revised April 1, 2001.
§ 301.6231(c)-7   Bankruptcy and receivership.
(a) Bankruptcy. The treatment of items as partnership items with respect to a partner named as a debtor in a bankruptcy proceeding will interfere with the effective and efficient enforcement of the internal revenue laws. Accordingly, partnership items of such a partner arising in any partnership taxable year ending on or before the last day of the latest taxable year of the partner with respect to which the United States could file a claim for income tax due in the bankruptcy proceeding shall be treated as nonpartnership items as of the date the petition naming the partner as debtor is filed in bankruptcy.
(b) Receivership. The treatment of items as partnership items with respect to a partner for whom a receiver has been appointed in any receivership proceeding before any court of the United States or of any State or the District of Columbia will interfere with the effective and efficient enforcement of the internal revenue laws. Accordingly, partnership items of such a partner arising in any partnership taxable year ending on or before the last day of the latest taxable year of the partner with respect to which the United States could file a claim for income tax due in the receivership proceeding shall be treated as nonpartnership items as of the date a receiver is appointed in any receivership proceeding before any court of the United States or of any State or the District of Columbia.
(c) Effective date. This section is applicable to partnership taxable years beginning on or after October 4, 2001. For years beginning prior to October 4, 2001, see § 301.6231(c)-7T contained in 26 CFR part 1, revised April 1, 2001.
§ 301.6231(c)-8   Prompt assessment.
(a) In general. The treatment of items as partnership items with respect to a partner on whose behalf a request for a prompt assessment of tax under section 6501(d) is filed will interfere with the effective and efficient enforcement of the internal revenue laws. Accordingly, partnership items of such a partner arising in any partnership taxable year ending with or within any taxable year of the partner with respect to which a request for a prompt assessment of tax is filed shall be treated as nonpartnership items as of the date that the request is filed.
(b) Effective date. This section is applicable to partnership taxable years beginning on or after October 4, 2001. For years beginning prior to October 4, 2001, see § 301.6231(c)-8T contained in 26 CFR part 1, revised April 1, 2001.
§ 301.6231(d)-1   Time for determining profits interest of partners for purposes of sections 6223(b) and 6231(a)(11).
(a) Partner owns interest at close of year. For purposes of section 6223(b) (relating to special rules for partnerships with more than 100 partners) and section 6231(a)(11) (relating to 5-percent groups), except as otherwise provided in this section, the profits interest held by a partner, directly or indirectly through one or more pass-thru partners, in a partnership (the source partnership) to which subchapter C of chapter 63 of the Internal Revenue Code applies shall be determined at the close of the source partnership's taxable year.
(b) Partner does not own interest at close of year. If the entire direct and indirect interest of a partner in a source partnership is terminated by virtue of a disposition by such partner of such interest (or by virtue of the disposition of an interest held by one or more pass-thru partners through which the partner holds an interest), then the profits interest of such partner in the source partnership shall be measured as of the moment before the disposition causing such termination. The preceding sentence shall not apply with respect to a termination if subsequent to such termination and before the close of the source partnership's taxable year the partner acquires a direct or indirect interest in the source partnership.
(c) Disposition of last remaining portion of interest is disposition of entire interest. If a partner (or a pass-thru partner through which a partner holds an interest) makes several partial dispositions of an interest in a source partnership during a taxable year of the source partnership, paragraph (b) of this section will apply with respect to the disposition which causes a termination of the partner's entire direct and indirect interest in the source partnership.
(d) No profits interest in certain cases. If—
(1) The interest of a partner in a partnership is entirely disposed of before the close of the taxable year of the partnership; and
(2) No items of the partnership for that taxable year are required to be taken into account by the partner, then that partner has no profits interest in the partnership for that taxable year.
(e) Examples. The provisions of this section may be illustrated by the following examples. Assume in all examples that there have been no reacquisitions prior to the close of the source partnership's taxable year. The examples are as follows:
(f) Effective date. This section is applicable to partnership taxable years beginning on or after October 4, 2001. For years beginning prior to October 4, 2001, see § 301.6231(d)-1T contained in 26 CFR part 1, revised April 1, 2001.
§ 301.6231(e)-1   Effect of a determination with respect to a nonpartnership item on the determination of a partnership item.
(a) In general. The determination of an item after it has become a nonpartnership item with respect to a partner is not controlling in the determination of that item with respect to other partners. Thus, for example, the determination by a court in a separate proceeding relating to a partner that a certain partnership expenditure was deductible does not bind either the Internal Revenue Service or the other partners in a later partnership or other proceeding.
(b) Effective date. This section is applicable to partnership taxable years beginning on or after October 4, 2001. For years beginning prior to October 4, 2001, see § 301.6231(e)-1T contained in 26 CFR part 1, revised April 1, 2001.
§ 301.6231(e)-2   Judicial decision not a bar to certain adjustments.
(a) In general. A court decision with respect to a partner's income tax liability attributable to nonpartnership items shall not be a bar to further proceedings with respect to that partner's income tax liability if that partner's partnership items become nonpartnership items after the appropriate time to include such nonpartnership items in the earlier court proceeding has passed. Thus, the Internal Revenue Service could issue a later deficiency notice for the same taxable year with respect to that partner or that partner could bring a refund suit with respect to those items that have become nonpartnership items.
(b) Effective date. This section is applicable to partnership taxable years beginning on or after October 4, 2001. For years beginning prior to October 4, 2001, see § 301.6231(e)-2T contained in 26 CFR part 1, revised April 1, 2001.
§ 301.6231(f)-1   Disallowance of losses and credits in certain cases.
(a) Application of section. This section applies if—
(1) A partnership, whether domestic or foreign, that is required to file a return under section 6031 for a taxable year fails to file the return within the time prescribed; and
(2) At any time after the close of that taxable year, either—
(i) The tax matters partner of that partnership resides outside the United States; or
(ii) The books and records of that partnership are maintained outside the United States.
(b) Computational adjustment permitted if return is not filed after mailing of notice. Except as otherwise provided in paragraph (c) of this section, if—
(1) This section applies with respect to a partnership for a partnership taxable year;
(2) The Internal Revenue Service mails notice to a partner that the losses and credits arising from that partnership for that year will be disallowed to that partner unless the partnership files a return for that year within 60 days after the date on which the notice is mailed; and
(3) The partnership fails to file a return for that year within that 60-day period, the Internal Revenue Service may, without conducting a partnership-level proceeding, mail a 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.
(c) Restriction on notices under paragraph (b) of this section. Neither the notice referred to in paragraph (b)(2) of this section nor the notice of computational adjustment referred to in paragraph (b) of this section may be mailed on a day on which—
(1) The tax matters partner of the partnership resides within the United States; and
(2) The books and records of the partnership are maintained within the United States. Thus, if this section applies with respect to a partnership for a taxable year solely because the tax matters partner of that partnership resided outside the United States for a period after the close of that taxable year and the tax matters partner later takes up residence within the United States, no notice may be mailed under paragraph (b) of this section while the tax matters partner resides within the United States.
(d) No disallowance in certain circumstances. If the person to whom the notice referred to in paragraph (b)(2) of this section is mailed establishes to the satisfaction of the Internal Revenue Service—
(1) That the losses and credits arising from the partnership for the year are proper; and
(2) That the partner has made a good faith effort to have the partnership file the required return; the Internal Revenue Service may allow the losses and credits in whole or in part.
(e) Effective date. This section is applicable to partnership taxable years beginning on or after October 4, 2001. For years beginning prior to October 4, 2001, see § 301.6231(f)-1T contained in 26 CFR part 1, revised April 1, 2001.
§ 301.6232-1   Assessment, collection, and payment of imputed underpayment.
(a) In general. An imputed underpayment determined under subchapter C of chapter 63 of the Internal Revenue Code (Code) is assessed and collected in the same manner as if the imputed underpayment were a tax imposed by subtitle A of the Code for the adjustment year (as defined in § 301.6241-1(a)(1)) except that the deficiency procedures under subchapter B of chapter 63 of the Code do not apply to an assessment of an imputed underpayment. Accordingly, no notice under section 6212 is required for, and the restrictions under section 6213 do not apply to, the assessment of any imputed underpayment. See paragraph (c) of this section for limitations on assessment and paragraph (d) of this section for exceptions to restrictions on adjustments.
(b) Payment of the imputed underpayment. Upon receipt of notice and demand from the Internal Revenue Service (IRS), an imputed underpayment must be paid by the partnership at the place and time stated in the notice. In the case of an adjustment requested in an administrative adjustment request (AAR) under section 6227(b)(1) that is taken into account by the partnership under § 301.6227-2(b), payment of the imputed underpayment is due on the date the AAR is filed. The IRS may assess the amount of the imputed underpayment reflected on the AAR on the date the AAR is filed. For interest with respect to an imputed underpayment, see § 301.6233(a)-1(b).
(c) Limitation on assessment —(1) In general. Except as otherwise provided by this section or subtitle F of the Code (except for subchapter B of chapter 63), no assessment of an imputed underpayment may be made (and no levy or proceeding in any court for the collection of an imputed underpayment may be made, begun, or prosecuted) before—
(i) The close of the 90th day after the day on which a notice of a final partnership adjustment (FPA) under section 6231(a)(3) was mailed; and
(ii) If a petition for readjustment is filed under section 6234 with respect to such FPA, the decision of the court has become final.
(2) Specified similar amount. The limitations under paragraph (c)(1) of this section do not apply in the case of a specified similar amount as defined in section 6232(f)(2).
(d) Exceptions to restrictions on adjustments and assessments —(1) Adjustments treated as mathematical or clerical errors —(i) In general. A notice to a partnership that, on account of a mathematical or clerical error appearing on the partnership return or as a result of a failure by a partnership-partner (as defined in § 301.6241-1(a)(7)) to comply with section 6222(a), the IRS has adjusted or will adjust partnership-related items (as defined in § 301.6241-1(a)(6)(ii)) to correct the error or to make the items consistent under section 6222(a) and has assessed or will assess any imputed underpayment (determined in accordance with § 301.6225-1) resulting from the adjustment is not considered an FPA under section 6231(a)(3). A petition for readjustment under section 6234 may not be filed with respect to such notice. The limitations under section 6232(b) and paragraph (c) of this section do not apply to an assessment under this paragraph (d)(1)(i). For the definition of mathematical or clerical error generally, see section 6213(g)(2). For application of mathematical or clerical error in the case of inconsistent treatment by a partner that fails to give notice, see § 301.6222-1(b).
(ii) Request for abatement —(A) In general. Except as provided in paragraph (d)(1)(ii)(B) of this section, a partnership that is mailed a notice described in paragraph (d)(1)(i) of this section may file with the IRS, within 60 days after the date of such notice, a request for abatement of any assessment of an imputed underpayment specified in such notice. Upon receipt of the request, the IRS must abate the assessment. Any subsequent assessment of an imputed underpayment with respect to which abatement was made is subject to the provisions of subchapter C of chapter 63 of the Code, including the limitations under paragraph (c) of this section.
(B) Adjustments with respect to inconsistent treatment by a partnership-partner. If an adjustment that is the subject of a notice described in paragraph (d)(1)(i) of this section is due to the failure of a partnership-partner to comply with section 6222(a), paragraph (d)(1)(ii)(A) of this section does not apply, and abatement of any assessment specified in such notice is not available. However, prior to assessment, a partnership-partner that has failed to comply with section 6222(a) may correct the inconsistency by filing an administrative adjustment request in accordance with section 6227 or filing an amended partnership return and furnishing amended statements, as appropriate.
(iii) Partnerships that have an election under section 6221(b) in effect. In the case of a partnership-partner that has an election under section 6221(b) in effect for the reviewed year (as defined in § 301.6241-1(a)(8)), any tax resulting from an adjustment due to the partnership-partner's failure to comply with section 6222(a) may be assessed with respect to the reviewed year partners (as defined in § 301.6241-1(a)(9)) of the partnership-partner (or indirect partners of the partnership-partner, as defined in § 301.6241-1(a)(4)). Such tax may be assessed in the same manner as if the tax were on account of a mathematical or clerical error appearing on the reviewed year partner's or indirect partner's return, except that the procedures under section 6213(b)(2) for requesting an abatement of such assessment do not apply.
(2) Partnership may waive limitations. A partnership may at any time by a signed notice in writing filed with the IRS waive the limitations under paragraph (c) of this section (whether or not an FPA under section 6231(a)(3) has been mailed by the IRS at the time of the waiver).
(e) Limit on amount of imputed underpayment where no proceeding is begun. If no proceeding under section 6234 is begun with respect to an FPA under section 6231(a)(3) before the close of the 90th day after the day on which such FPA was mailed, the amount for which the partnership is liable under section 6225 with respect to such FPA cannot exceed the amount determined in such FPA.
(f) Applicability date —(1) In general. Except as provided in paragraph (f)(2) of this section, this section applies to partnership taxable years beginning after December 31, 2017, and ending after August 12, 2018.
(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.
§ 301.6233-1   Extension to entities filing partnership returns.
(a) Entities filing a partnership return. Except as provided in paragraph (c)(1) of this section, the provisions of subchapter C of chapter 63 of the Internal Revenue Code (subchapter C) and the regulations thereunder shall apply with respect to any taxable year of an entity for which such entity files a partnership return as well as to such entity's items for that taxable year and to any person holding an interest in such entity at any time during that taxable year. Any final partnership administrative adjustment or judicial determination resulting from a proceeding under subchapter C with respect to such taxable year may include a determination that the entity is not a partnership for such taxable year as well as determinations with respect to all items of the entity that would be partnership items, as defined in section 6231(a)(3) and the regulations thereunder, if such entity had been a partnership in such taxable year (including, for example, any amounts taxable to an entity determined to be an association taxable as a corporation). For example, a final determination under subchapter C that an entity that filed a partnership return is an association taxable as a corporation will serve as a basis for a computational adjustment reflecting the disallowance of any loss or credit claimed by a purported partner with respect to that entity.
(b) Partnership return filed but no entity found to exist. Paragraph (a) of this section shall apply where a partnership return is filed for a taxable year but it is determined that there is no entity for such taxable year. For purposes of applying paragraph (a) of this section, the partnership return shall be treated as if it were filed by an entity. However, any final partnership administrative adjustment or judicial determination resulting from a proceeding under subchapter C with respect to such taxable year may also include a determination that there is no entity for such taxable year.
(c) Exceptions. Paragraph (a) of this section shall not apply to—
(1) Entities for any taxable year in which such entity would be excepted from the provisions of subchapter C of the Internal Revenue Code under section 6231(a)(1)(B) and the regulations thereunder (relating to the exception for small partnerships) if such entity were a partnership for such taxable year; and
(2) Entities for any taxable year for which a partnership return was filed for the sole purpose of making the election described in section 761(a).
(d) Effective dates. This section is applicable to partnership taxable years beginning on or after October 4, 2001. For years beginning prior to October 4, 2001, see § 301.6233-1T contained in 26 CFR part 1, revised April 1, 2001.
§ 301.6233(a)-1   Interest and penalties determined from reviewed year.
(a) Interest and penalties with respect to the reviewed year. Except to the extent provided in section 6226(c), in the case of a partnership adjustment (as defined in § 301.6241-1(a)(6)) for a reviewed year (as defined in § 301.6241-1(a)(8)), a partnership is liable for—
(1) Interest computed in accordance with paragraph (b) of this section; and
(2) Any penalty, addition to tax, or additional amount as provided under paragraph (c) of this section.
(b) Computation of interest with respect to partnership adjustments for the reviewed year —(1) Interest on an imputed underpayment. The interest imposed on an imputed underpayment resulting from partnership adjustments for the reviewed year is the interest that would be imposed under chapter 67 of the Internal Revenue Code (Code) if the imputed underpayment were treated as an underpayment of tax for the reviewed year. The interest imposed on an imputed underpayment under paragraph (b) of this section begins on the day after the due date of the partnership return (without regard to extension) for the reviewed year and ends on the earlier of—
(i) The date prescribed for payment (as described in § 301.6232-1(b));
(ii) The due date of the partnership return (without regard to extension) for the adjustment year (as defined in § 301.6241-1(a)(1)); or
(iii) The date the imputed underpayment is fully paid.
(2) Interest on penalties with respect to the reviewed year. The interest imposed on any penalties, additions to tax, and additional amounts determined under paragraph (c) of this section is the interest that would be imposed under chapter 67 of the Code treating the partnership return for the reviewed year as the return of tax with respect to which such penalty, addition to tax, or additional amount is imposed.
(c) Penalties with respect to partnership adjustments for the reviewed year —(1) In general. In accordance with section 6221(a), the applicability of any penalties, additions to tax, and additional amounts that relate to an adjustment to any partnership-related item for the reviewed year is determined at the partnership level as if the partnership had been an individual subject to tax imposed by chapter 1 of the Code for the reviewed year, and the imputed underpayment were an actual underpayment of tax or understatement for such year. Nothing in this paragraph (c)(1) affects the application of any penalty, addition to tax, or additional amount that may apply to the partnership or to any reviewed year partner (as defined in § 301.6241-1(a)(9)) or to any indirect partner (as defined in § 301.6241-1(a)(4)) that is unrelated to an adjustment to a partnership-related item under subchapter C of chapter 63 of the Code. Except as provided in § 301.6225-2(d), a partner-level defense (as described in § 301.6226-3(d)(3)) may not be raised in a proceeding of the partnership.
(2) Determination of the amount of accuracy-related penalty and fraud penalty —(i) In general. The amount of any penalty under part II of subchapter A of chapter 68 of the Code (accuracy-related or fraud penalties) that relates to any partnership adjustment for the reviewed year is determined in accordance with this paragraph (c)(2). If in determining the imputed underpayment under § 301.6225-1 (or § 301.6225-2 in the case of modification), any grouping or subgrouping contains a negative adjustment (as defined in § 301.6225-1(d)(2)(ii)) and at least one positive adjustment (as defined in § 301.6225-1(d)(2)(iii)) that is subject to penalty, first apply the rules for allocating negative adjustments in paragraph (c)(2)(iii) of this section. Then, apply the rules in paragraph (c)(2)(ii) of this section to calculate penalty amounts. If there are no negative adjustments, do not apply the rules in paragraph (c)(2)(iii) of this section and instead apply only the rules in paragraph (c)(2)(ii) of this section. For all purposes under paragraph (c)(2) of this section, adjustments that do not result in the imputed underpayment (as described in § 301.6225-1(f)) and adjustments excluded from the determination of the imputed underpayment under § 301.6225-2(b)(2) are disregarded.
(ii) Calculating the portion of an imputed underpayment subject to penalty and penalty amounts. To determine the portion of an imputed underpayment subject to a penalty and the amount of a particular penalty, apply the following steps to all adjustments subject to penalty remaining after application of negative adjustments (as described in paragraph (c)(2)(iii) of this section) and to all adjustments subject to penalty contained in groupings or subgroupings that do not contain a negative adjustment.
(A) For purposes of applying this paragraph (c)(2)(ii)(A), disregard adjustments to credits or adjustments treated as adjustments to credits. Total all adjustments to which a particular penalty was imposed and to which the highest rate of tax in effect for the reviewed year under section 1 or 11 was applied when calculating the imputed underpayment. See § 301.6225-1(b)(1)(iv).
(B) Multiply the total in paragraph (c)(2)(ii)(A) of this section by the highest rate of tax in effect for the reviewed year under section 1 or 11.
(C) If the imputed underpayment was modified in accordance with § 301.6225-2(b)(3), repeat the steps in paragraphs (c)(2)(ii)(A) and (B) of this section for every tax rate applied in calculating the imputed underpayment by substituting the applicable tax rate determined under § 301.6225-2(b)(3) for the highest rate of tax in effect for the reviewed year under section 1 or 11.
(D) Total all amounts determined after completing the steps in paragraphs (c)(2)(ii)(A) through (C) of this section.
(E) Adjust the amount calculated in paragraph (c)(2)(ii)(D) of this section by:
( 1 ) Increasing by the net adjustments subject to the penalty in the credit grouping (as described in paragraph (c)(2)(iii)(C)( 1 ) of this section) after application of paragraph (c)(2)(iii)(A) of this section; or
( 2 ) Decreasing in accordance with the rules in paragraph (c)(2)(iii)(C)( 2 ) of this section by the amount of negative adjustments in the credit grouping if, after application of paragraph (c)(2)(iii)(A) of this section, only negative adjustments in the credit grouping remain.
( 3 ) The result after completing the calculation in paragraphs (c)(2)(ii)(E)( 1 ) and ( 2 ) of this section is the portion of the imputed underpayment to which the particular penalty was imposed.
(F) Multiply the total calculated in paragraph (c)(2)(ii)(E) of this section by the penalty rate applicable to the particular penalty. This is the total penalty amount for adjustments to which the particular penalty was imposed.
(iii) Allocating negative adjustments —(A) In general. Negative adjustments offset positive adjustments within the same grouping or, if the negative adjustment is in a subgrouping, within that same subgrouping. For purposes of applying this paragraph (c)(2)(iii), all adjustments to credits and adjustments treated as adjustments to credits are treated as grouped in the credit grouping without regard to whether the adjustments were subgrouped for purposes of § 301.6225-1 (or § 301.6225-2 in the case of modification). Adjustments that do not result in the imputed underpayment are disregarded as provided in paragraph (c)(2) of this section. Negative adjustments are allocated in accordance with the following rules:
( 1 ) Negative adjustments are first applied to offset positive adjustments to which no penalties have been imposed.
( 2 ) Any amount of negative adjustments remaining after application of paragraph (c)(2)(iii)(A)( 1 ) of this section are applied to offset adjustments to which a penalty has been imposed at the lowest penalty rate.
( 3 ) Any amount of negative adjustments remaining after application of paragraph (c)(2)(iii)(A)( 2 ) of this section are applied to offset adjustments to which a penalty has been imposed at the next highest rate in ascending order of rate until no amount of negative adjustments remain or no positive adjustments to which a penalty has been imposed remain.
(B) Allocation of negative adjustment within a penalty rate. The Internal Revenue Service (IRS) may provide additional guidance regarding the ordering or allocation of negative adjustments for purposes of paragraph (c)(2)(iii)(A) of this section where more than one penalty is imposed at the same penalty rate.
(C) Adjustments remaining after allocation of negative adjustments —( 1 ) In general. For purposes of paragraph (c)(2)(ii) of this section, any positive adjustment to which a penalty has been imposed that has not been fully offset by a negative adjustment after application of paragraph (c)(2)(iii)(A) of this section is a net adjustment subject to penalty remaining after allocation of negative adjustments.
( 2 ) Additional rules regarding allocation of negative credit amounts. If, after application of paragraph (c)(2)(iii)(A) of this section, an amount of negative adjustments remain in the credit grouping, the amount of remaining negative adjustments may reduce the portion of the imputed underpayment that is subject to a penalty, but not below zero, in accordance with the following rules:
( i ) The amount of remaining negative adjustments in the credit grouping are first applied to the portion of the imputed underpayment to which no penalty has been imposed, as calculated in accordance with paragraph (c)(2)(iii)(C)( 3 ) of this section.
( ii ) Any amount of negative adjustment in the credit grouping remaining after application of paragraph (c)(2)(iii)(C)( 2 )( i ) of this section is applied to the portion of the imputed underpayment to which a penalty has been imposed at the lowest penalty rate as calculated in accordance with paragraph (c)(2)(ii) of this section.
( iii ) Any amount of negative adjustments in the credit grouping remaining after application of paragraph (c)(2)(iii)(C)( 1 )( ii ) of this section is applied to the portion of the imputed underpayment to which a penalty has been imposed at the next highest rate in ascending order of rate in accordance with paragraph (c)(2)(iii) of this section until no negative amount remains.
( 3 ) Calculating the portion of the imputed underpayment to which no penalty was imposed before the application of negative adjustments to credits. To determine the portion of the imputed underpayment that is not subject to penalty for purposes of paragraph (c)(2)(iii)(C)( 2 )( i ) of this section, apply the rules in paragraphs (c)(2)(ii)(A) through (E) of this section of this section but substitute adjustment to which no penalty was imposed for adjustments to which a particular penalty was imposed.
(iv) Special rules —(A) Fraud penalties under section 6663. If any portion of an imputed underpayment is determined by the IRS to be attributable to fraud, the entire imputed underpayment is treated as attributable to fraud. This paragraph (c)(2)(iv)(A) does not apply to any portion of the imputed underpayment the partnership establishes by a preponderance of the evidence is not attributable to fraud.
(B) Substantial understatement penalty under section 6662(d) —( 1 ) In general. For purposes of application of the penalty under section 6662(d) (substantial understatement of income tax), the imputed underpayment is treated as an understatement under section 6662(d)(2). To determine whether an imputed underpayment treated as an understatement under this paragraph (c)(2)(iv)(B)( 1 ) is a substantial understatement under section 6662(d)(1), the rules of section 6662(d)(1)(A) apply by treating the amount described in paragraph (c)(2)(iv)(B)( 2 ) of this section as the tax required to be shown on the return for the taxable year under section 6662(d)(1)(A)(i).
( 2 ) Amount of tax required to be shown on the return. The amount described in this paragraph (c)(2)(iv)(B)( 2 ) is the tax that would result by treating the net income or loss of the partnership for the reviewed year, reflecting any partnership adjustments as finally determined, as taxable income described in section 1(c) (determined without regard to section 1(h)).
(C) Reportable transaction understatement under section 6662A. For purposes of application of the penalty under section 6662A (reportable transaction understatement penalty), the portion of an imputed underpayment attributable to an item described under section 6662A(b)(2) is treated as a reportable transaction understatement under section 6662A(b).
(D) Reasonable cause and good faith. For purposes of determining whether a partnership satisfies the reasonable cause and good faith exception under section 6664(c) or (d) with respect to a penalty under section 6662, section 6662A, or section 6663, the partnership is treated as the taxpayer. See § 1.6664-4 of this chapter. Accordingly, the facts and circumstances taken into account to determine whether the partnership has established reasonable cause and good faith are the facts and circumstances applicable to the partnership.
(v) Examples. The following examples illustrate the rules of paragraph (c) of this section. For purposes of these examples, each partnership has a calendar taxable year, and the highest tax rate in effect for all taxpayers is 40 percent for all relevant periods.
(A) Example 1. In an administrative proceeding with respect to Partnership's 2018 partnership return, the IRS makes a positive adjustment to ordinary income of $100. The $100 adjustment is due to negligence or disregard of rules or regulations under section 6662(c), and a 20-percent accuracy-related penalty applies under section 6662(a). The IRS also makes a positive adjustment to long-term capital gain of $300, but no penalty applies with respect to that adjustment. These are the only adjustments. The portion of the imputed underpayment to which the 20-percent penalty applies is $40 ($100 × 40 percent), and the penalty is $8 ($40 × 20 percent).
(B) Example 2. The facts are the same as in Example 1 in paragraph (c)(2)(v)(A) of this section, except that the IRS makes a positive adjustment to credits of $10. The adjustment to credits is due to negligence or disregard of rules or regulations under section 6662(c), and a 20-percent accuracy-related penalty applies under section 6662(a). The portion of the imputed underpayment to which the 20-percent accuracy-related penalty applies is $50 (($100 × 40 percent) + $10), and the penalty is $10 ($50 × 20 percent).
(C) Example 3. The facts are the same as in Example 2 in paragraph (c)(2)(v)(B) of this section, except that there is also a negative adjustment to ordinary income of $50 that was subgrouped under § 301.6225-1 with the $100 positive adjustment to ordinary. Because the $50 negative adjustment to ordinary income was subgrouped under § 301.6225-1 with the $100 positive adjustment to ordinary income, in determining the portion of the imputed underpayment subject to penalty, the $50 negative adjustment is applied to offset part of the $100 positive adjustment to ordinary income ($100−$50 = $50). Accordingly, the portion of the imputed underpayment to which the 20-percent accuracy-related penalty applies is $30 (($50 × 40 percent) + $10), and the penalty is $6 ($30 × 20 percent).
(D) Example 4. The facts are the same as in Example 3 in paragraph (c)(2)(v)(C) of this section, except that the $300 adjustment to long-term capital gain is due to a gross valuation misstatement. A 40-percent accuracy-related penalty under section 6662(a) and (h) applies to the portion of the imputed underpayment attributable to the gross valuation misstatement. The portion of the imputed underpayment to which the 20 percent accuracy-related penalty applies remains $30, and the 20-percent accuracy-related penalty remains $6. The portion of the imputed underpayment to which the 40-percent gross valuation misstatement penalty applies is $120 ($300 × 40 percent), and the gross valuation misstatement penalty is $48 ($120 × 40 percent). The total accuracy-related penalty under section 6662(a) is $54.
(E) Example 5. Partnership has four equal partners during its 2019 taxable year: Two partners are partnerships, A and B; one partner is a tax-exempt entity, C; and the fourth partner is an individual, D. In an administrative proceeding with respect to Partnership's 2019 taxable year, the IRS timely mails a notice of proposed partnership adjustment (NOPPA) to Partnership for its 2019 taxable year proposing a single partnership positive adjustment to Partnership's ordinary income by $400,000. The $400,000 positive adjustment is due to negligence or disregard of rules or regulations under section 6662(c). A 20-percent accuracy-related penalty under section 6662(a) and (c) applies to the portion of the imputed underpayment attributable to the negligence or disregard of the rules or regulations. In the NOPPA, the IRS determines an imputed underpayment of $160,000 ($400,000 × 40 percent) and that the 20-percent penalty applies to the entire imputed underpayment. The penalty is $32,000 ($160,000 × 20 percent). Partnership requests modification under § 301.6225-2(d)(3) (regarding tax-exempt partners) with respect to the amount of additional income allocated to C, and the IRS approves the modification request. As a result, Partnership's total netted partnership adjustment under § 301.6225-1(b)(2) is $300,000 ($400,000 less $100,000 allocable to C). The imputed underpayment is $120,000 (($300,000) × 40 percent), and the penalty is $24,000 ($120,000 × 20 percent).
(F) Example 6. The facts are the same as in Example 5 in paragraph (c)(2)(v)(E) of this section, except in addition to the modification with respect to C's tax-exempt status, Partnership requests a modification under § 301.6225-2(d)(2) (regarding amended returns) with respect to the $100,000 of additional income allocated to D. In accordance with the rules under § 301.6225-2(d)(2), D files an amended return for D's 2019 taxable year taking into account $100,000 of additional ordinary income. In addition, in accordance with § 301.6225-2(d)(2)(viii), D takes into account on D's return the 20-percent accuracy-related penalty for negligence or disregard of rules or regulations that relates to the ordinary income adjustment. D's tax attributes for other taxable years are not affected. The IRS approves the modification request. As a result, Partnership's total netted partnership adjustment under § 301.6225-1(b)(2) is $200,000 ($400,000 less $100,000 allocable to C and $100,000 taken into account by D). The imputed underpayment, after modification, is $80,000 ($200,000 × 40 percent), and the penalty is $16,000 ($80,000 × 20 percent).
(d) Applicability date —(1) In general. Except as provided in paragraph (d)(2) of this section, this section applies to partnership taxable years beginning after December 31, 2017, and ending after August 12, 2018.
(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.
§ 301.6233(b)-1   Interest and penalties with respect to the adjustment year return.
(a) Interest and penalties with respect to failure to pay imputed underpayment on the date prescribed. In the case of any failure to pay an imputed underpayment on the date prescribed for such payment (as described in § 301.6232-1(b)), a partnership is liable for—
(1) Interest as determined under paragraph (c) of this section; and
(2) Any penalty, addition to tax, or additional amount as determined under paragraph (d) of this section.
(b) Imputed underpayments to which this section applies. This section applies to the portion of an imputed underpayment determined by the Internal Revenue Service (IRS) under section 6225(a)(1), or an imputed underpayment resulting from adjustments requested by a partnership in an administrative adjustment request under section 6227, that is not paid by the date prescribed for payment under § 301.6232-1(b).
(c) Interest. Interest determined under this paragraph (c) is the interest that would be imposed under chapter 67 of the Internal Revenue Code (Code) by treating any unpaid amount of the imputed underpayment as an underpayment of tax imposed for the adjustment year (as defined in § 301.6241-1(a)(1)). The interest under this paragraph (c) begins on the date prescribed for payment (as described in § 301.6232-1(b)) and ends on the date payment of the imputed underpayment is made.
(d) Penalties. If a partnership fails to pay an imputed underpayment by the date prescribed for payment (as described in § 301.6232-1(b)), section 6651(a)(2) applies to such failure, and any unpaid amount of the imputed underpayment is treated as if it were an underpayment of tax for purposes of part II of subchapter A of chapter 68 of the Code. For purposes of this section, the penalty under 6651(a)(2) is applied by treating the unpaid amount of the imputed underpayment as the unpaid amount shown as tax on a return required under subchapter A of chapter 61 of the Code.
(e) Applicability date —(1) In general. Except as provided in paragraph (e)(2) of this section, this section applies to partnership taxable years beginning after December 31, 2017, and ending after August 12, 2018.
(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.
§ 301.6234-1   Judicial review of partnership adjustment.
(a) In general. Within 90 days after the date on which a notice of a final partnership adjustment (FPA) under section 6231(a)(3) with respect to any partnership taxable year is mailed, a partnership may file a petition for a readjustment of any partnership adjustment (as defined in § 301.6241-1(a)(6)) reflected in the FPA for such taxable year (without regard to whether an election under section 6226 has been made with respect to any imputed underpayment (as defined in § 301.6241-1(a)(3)) reflected in such FPA) with—
(1) The Tax Court;
(2) The district court of the United States for the district in which the partnership's principal place of business is located; or
(3) The Court of Federal Claims.
(b) Jurisdictional requirement for bringing action in district court or Court of Federal Claims. A petition for readjustment under this section with respect to any partnership adjustment may be filed in a district court of the United States or the Court of Federal Claims only if the partnership filing the petition deposits with the Internal Revenue Service (IRS), on or before the date the petition is filed, the amount of (as of the date of the filing of the petition) any imputed underpayment (as shown on the FPA) and any penalties, additions to tax, and additional amounts with respect to such imputed underpayment. If there is more than one imputed underpayment reflected in the FPA, the partnership must deposit the amount of each imputed underpayment to which the petition for readjustment relates and the amount of any penalties, additions to tax, and additional amounts with respect to each such imputed underpayment.
(c) Treatment of deposit as payment of tax. Any amount deposited in accordance with paragraph (b) of this section, while deposited, will not be treated as a payment of tax for purposes of the Internal Revenue Code (Code). Notwithstanding the preceding sentence, an amount deposited in accordance with paragraph (b) of this section will be treated as a payment of tax for purposes of chapter 67 of the Code (relating to interest). Interest will be allowed and paid in accordance with section 6611.
(d) Effect of decision dismissing action. If an action brought under this section is dismissed other than by reason of a rescission of the FPA under section 6231(d) and § 301.6231-1(g), the decision of the court dismissing the action is considered as its decision that the FPA is correct.
(e) Amount deposited may be applied against assessment. If the limitations on assessment under section 6232(b) and § 301.6232-1(c) no longer apply with respect to an imputed underpayment for which a deposit under paragraph (b) of this section was made, the IRS may apply the amount deposited against any such imputed underpayment that is assessed. In the case of a deposit made under this section that is in an amount in excess of the amount assessed against the partnership (excess deposit), a partnership may obtain a return of the excess deposit by making a request in writing in accordance with forms, instructions, or other guidance prescribed by the IRS.
(f) Applicability date —(1) In general. Except as provided in paragraph (f)(2) of this section, this section applies to partnership taxable years beginning after December 31, 2017, and ending after August 12, 2018.
(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.
§ 301.6235-1   Period of limitations on making adjustments.
(a) In general. Except as provided in section 6235(c), section 905(c), or paragraph (d) of this section (regarding extensions), no partnership adjustment (as defined in § 301.6241-1(a)(6)) for any partnership taxable year may be made after the later of the date that is—
(1) 3 years after the latest of—
(i) The date on which the partnership return for such taxable year was filed;
(ii) The return due date (as defined in section 6241(3)) for the taxable year; or
(iii) The date on which the partnership filed an administrative adjustment request with respect to such taxable year under section 6227;
(2) The date described in paragraph (b) of this section with respect to a request for modification; or
(3) The date described in paragraph (c) of this section with respect to a notice of proposed partnership adjustment.
(b) Modification requested under section 6225(c) —(1) In general. For purposes of paragraph (a)(2) of this section, in the case of any request for modification of any imputed underpayment under section 6225(c), the date by which the Internal Revenue Service (IRS) may make a partnership adjustment is the date that is 270 days (plus the number of days of an extension of the period for requesting modification (as described in § 301.6225-2(c)(3)(i)) agreed to by the IRS under section 6225(c)(7) and § 301.6225-2(c)(3)(ii)) after the date on which everything required to be submitted to the IRS pursuant to section 6225(c) is so submitted.
(2) Date on which everything is required to be submitted —(i) In general. For purposes of paragraph (b)(1) of this section, the date on which everything required to be submitted to the IRS pursuant to section 6225(c) is so submitted is the earlier of—
(A) The date the period for requesting modification ends (including extensions) as described in § 301.6225-2(c)(3)(i) and (ii); or
(B) The date the period for requesting modification expires as a result of a waiver of the prohibition on mailing a notice of final partnership adjustment (FPA) under § 301.6231-1(b)(2). See § 301.6225-2(c)(3)(iii).
(ii) Incomplete submission has no effect. A determination by the IRS that the information submitted as part of a request for modification is incomplete has no effect on the applicability of paragraph (b)(2) of this section.
(c) Notice of proposed partnership adjustment. For purposes of paragraph (a)(3) of this section, the date by which the IRS may make a partnership adjustment is the date that is 330 days (plus the number of days of an extension of the modification period (as described in § 301.6225-2(c)(3)(i)) agreed to by the IRS under section 6225(c)(7) and § 301.6225-2(c)(3)(ii)) after the date the last notice of proposed partnership adjustment (NOPPA) under section 6231(a)(2) is mailed, regardless of whether modification is requested by the partnership under section 6225(c).
(d) Extension by agreement. The periods described in paragraphs (a), (b), and (c) of this section (including any extension of those periods pursuant to this paragraph (d)) may be extended by an agreement, in writing, entered into by the partnership and the IRS before the expiration of such period.
(e) Examples. The following examples illustrate the rules of this section. For purposes of these examples, each partnership has a calendar taxable year.
(1) Example 1. Partnership timely files its partnership return for the 2020 taxable year on March 1, 2021. On September 1, 2023, Partnership files an administrative adjustment request (AAR) under section 6227 with respect to its 2020 taxable year. As of September 1, 2023, the IRS has not initiated an administrative proceeding under subchapter C of chapter 63 of the Internal Revenue Code with respect to Partnership's 2020 taxable year. Therefore, as of September 1, 2023, under paragraph (a)(1) of this section, the period for making partnership adjustments with respect to Partnership's 2020 taxable year expires on September 1, 2026.
(2) Example 2. Partnership timely files its partnership return for the 2020 taxable year on the due date, March 15, 2021. On February 1, 2023, the IRS mails to Partnership and the partnership representative of Partnership (PR) a notice of administrative proceeding under section 6231(a)(1) with respect to Partnership's 2020 taxable year. Assuming no AAR has been filed with respect to Partnership's 2020 taxable year and the IRS has not yet mailed a NOPPA under section 6231(a)(2) with respect to Partnership's 2020 taxable year, the period for making partnership adjustments for Partnership's 2020 taxable year expires on the date determined under paragraph (a)(1) of this section, March 15, 2024.
(3) Example 3. The facts are the same as in Example 2 in paragraph (e)(2) of this section, except that on June 1, 2023, pursuant to paragraph (d) of this section, PR signs an agreement extending the period for making partnership adjustments under section 6235(a) for Partnership's 2020 taxable year to December 31, 2025. In addition, on June 2, 2025, the IRS mails to Partnership and PR a timely NOPPA under section 6231(a)(2). Pursuant to § 301.6225-2(c)(3)(i), the period for requesting modification expires on February 27, 2026 (270 days after June 2, 2025, the date the NOPPA is mailed), but PR does not submit a request for modification on or before this date. Under paragraph (c) of this section, the date for purposes of paragraph (a)(3) of this section is April 28, 2026, the date that is 330 days from the mailing of the NOPPA. Because April 28, 2026 is later than the date under paragraph (a)(1) of this section (December 31, 2025, as extended under paragraph (d) of this section), and because no modification was requested, paragraph (a)(2) of this section is not applicable, April 28, 2026 is the date on which the period for making partnership adjustments expires under section 6235.
(4) Example 4. The facts are the same as in Example 3 in paragraph (e)(3) of this section, except that PR notifies the IRS that Partnership will be requesting modification. On January 5, 2026, PR and the IRS agree to extend the period for requesting modification pursuant to section 6225(c)(7) and § 301.6225-2(c)(3)(ii) for 45 days—from February 27, 2026 to April 13, 2026. PR submits the request for modification to the IRS on April 13, 2026. Therefore, the date determined under paragraph (b) of this section is February 22, 2027, which is 270 days after the date everything required to be submitted was so submitted pursuant to paragraph (b)(2) of this section plus the additional 45-day extension of the period for requesting modification agreed to by PR and the IRS. Because February 22, 2027 is later than the date under paragraph (a)(1) of this section (December 31, 2025, as extended under paragraph (d) of this section) and the date under paragraph (a)(3) of this section (June 12, 2026, which is 330 days from the date the NOPPA was mailed plus the 45-day extension under section 6225(c)(7)), February 22, 2027 is the date on which the period for making partnership adjustments expires under section 6235.
(5) Example 5. The facts are the same as in Example 4 in paragraph (e)(4) of this section, except that PR does not request an extension of the period for requesting modification. On February 1, 2026, PR submits a request for modification and PR, and the IRS agree in writing to waive the prohibition on mailing an FPA pursuant to § 301.6231-1(b)(2). Pursuant to § 301.6225-2(c)(3)(iii), the period for requesting modification expires as of February 1, 2026, rather than February 27, 2026. Accordingly, under paragraph (b)(2) of this section, the date on which everything required to be submitted pursuant to section 6225(c) is so submitted is February 1, 2026, and the 270-day period described in paragraph (b)(1) of this section begins to run on that date. Therefore, the date for purposes of paragraph (a)(2) of this section is October 29, 2026, which is 270 days after February 1, 2026, the date on which everything required to be submitted under section 6225(c) is so submitted. Because October 29, 2026 is later than the date under paragraph (a)(1) of this section (December 31, 2025, as extended under paragraph (d) of this section) and the date under paragraph (a)(3) of this section (April 28, 2026), October 29, 2026 is the date on which the period for making partnership adjustments expires under section 6235.
(6) Example 6. The facts are the same as in Example 5 in paragraph (e)(5) of this section, except PR completes its submission of information to support a request for modification on July 1, 2025, but does not execute a waiver pursuant to § 301.6231-1(b)(2). Therefore, pursuant to paragraph (b)(2) of this section, February 27, 2026, the date the period requesting modification expires, is the date on which everything required to be submitted pursuant to section 6225(c) is so submitted. As a result, the 270-day period described in paragraph (b)(1) of this section expires on November 24, 2026. Because November 24, 2026 is later than the date under paragraph (a)(1) of this section (December 31, 2025, as extended under paragraph (d) of this section) and the date under paragraph (a)(3) of this section (April 28, 2026), November 24, 2026 is the date on which the period for making partnership adjustments expires under section 6235.
(f) Applicability date —(1) In general. Except as provided in paragraph (f)(2) of this section, this section applies to partnership taxable years beginning after December 31, 2017, and ending after August 12, 2018.
(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.
§ 301.6241-1   Definitions.
(a) Definitions. For purposes of subchapter C of chapter 63 of the Internal Revenue Code (Code) and the regulations in this part under sections 6221 through 6241 of the 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 of the Code, § 301.6225-1, and, if applicable, § 301.6225-2. 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 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. 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. 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. 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 paragraphs (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.
§ 301.6241-2   Bankruptcy of the partnership.
(a) Coordination between Title 11 and proceedings under subchapter C of chapter 63 —(1) In general. If a partnership is a debtor in a case under Title 11 of the United States Code (Title 11 case), the running of any period of limitations under section 6235 with respect to the time for making a partnership adjustment (as defined in § 301.6241-1(a)(6)) and under sections 6501 and 6502 with respect to the assessment or collection of any imputed underpayment (as defined in § 301.6241-1(a)(3)) determined under subchapter C of chapter 63 of the Internal Revenue Code (subchapter C of chapter 63) is suspended during the period the Internal Revenue Service (IRS) is prohibited by reason of the Title 11 case from making the adjustment, assessment, or collection until—
(i) 60 days after the suspension ends, for adjustments or assessments; and
(ii) 6 months after the suspension ends, for collection.
(2) Interaction with section 6232(b). The filing of a proof of claim or request for payment (or the taking of any other action) in a Title 11 case is not be treated as an action prohibited by section 6232(b) (regarding limitations on assessment).
(3) Suspension of the time for judicial review. In a Title 11 case, the running of the period specified in section 6234 (regarding judicial review of partnership adjustments) is suspended during the period during which the partnership is prohibited by reason of the Title 11 case from filing a petition under section 6234, and for 60 days thereafter.
(4) Actions not prohibited. The filing of a petition under Title 11 does not prohibit the following actions:
(i) An administrative proceeding with respect to a partnership under subchapter C of chapter 63;
(ii) The mailing of any notice with respect to a proceeding with respect to a partnership under subchapter C of chapter 63, including:
(A) A notice of administrative proceeding;
(B) A notice of proposed partnership adjustment; and
(C) A notice of final partnership adjustment;
(iii) A demand for tax returns;
(iv) The assessment of any tax, including the assessment of any imputed underpayment with respect to a partnership; and
(v) The issuance of notice and demand for payment of an assessment under subchapter C of chapter 63 (but see section 362(b)(9)(D) of Title 11 of the United States Code regarding the timing of when a tax lien takes effect by reason of such assessment).
(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.
(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.
§ 301.6241-3   Treatment where a partnership ceases to exist.
(a) Former partners take adjustments into account —(1) In general. If the Internal Revenue Service (IRS) determines that any partnership (including a partnership-partner as defined in § 301.6241-1(a)(7)) ceases to exist (as defined in paragraph (b) of this section) before any partnership adjustment (as defined in § 301.6241-1(a)(6)) under subchapter C of chapter 63 of the Internal Revenue Code (subchapter C of chapter 63) takes effect (as described in paragraph (c) of this section), the partnership adjustment is taken into account by the former partners (as described in paragraph (d) of this section) of the partnership in accordance with paragraph (e) of this section. A determination under this section that a partnership has ceased to exist does not prohibit the partnership from requesting modification of the imputed underpayment under section 6225(c).
(2) Partnership no longer liable for any unpaid amounts resulting from a partnership adjustment. A partnership that ceases to exist is no longer liable for any unpaid amounts resulting from a partnership adjustment required to be taken into account by a former partner under this section.
(3) Application of this section to partnership-partners. This section applies to a partnership-partner and its former partners, regardless of whether the partnership-partner has an election under section 6221(b) in effect for any relevant partnership taxable year.
(b) Cease to exist defined —(1) In general. If a partnership ceases to exist, the IRS will notify the partnership and the former partners (as defined in paragraph (d) of this section), in writing, within 30 days of such determination using the last known address of the partnership and the former partners. A failure by the IRS to send a notification under this paragraph (b)(1) to a former partner of the partnership does not invalidate the determination by the IRS that the partnership ceases to exist. If an audited partnership (as defined in § 301.6226-3(e)(1)) ceases to exist, the IRS will also notify the partnership representative for the reviewed year. For purposes of this section, a partnership ceases to exist if the IRS makes a determination that a partnership ceases to exist because:
(i) The partnership terminates within the meaning of section 708(b)(1); or
(ii) The partnership does not have the ability to pay, in full, any amount that may be due under the provisions of subchapter C of chapter 63 for which the partnership is or may become liable. For purposes of this section, a partnership does not have the ability to pay if the IRS determines that the partnership's account is currently not collectible based on the information the IRS has at the time of such determination.
(2) Year in which a partnership ceases to exist. If a partnership terminates under section 708(b)(1), the partnership ceases to exist on the last day of the partnership's final taxable year. If a partnership does not have the ability to pay, the partnership ceases to exist on the date that the IRS makes a determination under paragraph (b)(1) of this section that the partnership ceases to exist.
(3) Limitation on IRS determination that partnership ceases to exist. In no event may the IRS determine that a partnership ceases to exist with respect to a partnership adjustment after the expiration of the period of limitations on collection applicable to the assessment made against the partnership for the amount due resulting from such adjustment. A determination under this section that a partnership has ceased to exist is not effective if the partnership has made a valid election under § 301.6226-1 in response to a notice of final partnership adjustment or has paid all amounts due by the partnership under subchapter C of chapter 63 within 10 days of notice and demand for payment.
(c) Partnership adjustment takes effect. For purposes of this section, a partnership adjustment under subchapter C of chapter 63 takes effect when the adjustment becomes finally determined as described in § 301.6226-2(b)(1); when the partnership and the IRS enter into a settlement agreement regarding the adjustment; or, for adjustments appearing on an administrative adjustment request (AAR), when the request is filed.
(d) Former partners —(1) Adjustment year partners —(i) In general. Except as described in paragraphs (d)(1)(ii) and (d)(2) of this section, the term former partners means, for a partnership that has ceased to exist, the partners of the partnership during the adjustment year (as defined in § 301.6241-1(a)(1)) that corresponds to the reviewed year for which the adjustments were made.
(ii) Partnership-partner ceases to exist. If the adjustment year partner is a partnership-partner that the IRS has determined ceased to exist, the partners of such partnership-partner during the partnership-partner's taxable year that includes the end of the adjustment year of the partnership that is subject to a proceeding under subchapter C of chapter 63 are the former partners for purposes of this section. If the partnership-partner ceased to exist before the partnership-partner's taxable year that includes the end of the adjustment year of the partnership that is subject to a proceeding under subchapter C of chapter 63, the former partners for purposes of this section are the partners of such partnership-partner during the last partnership taxable year for which the a partnership return of the partnership-partner under section 6031 is filed.
(2) No adjustment year partners. If there are no adjustment year partners of a partnership that ceases to exist, the term former partners means the partners of the partnership during the last taxable year for which a partnership return under section 6031 was filed with respect to such partnership. For instance, if a partnership terminates under section 708(b)(1) before the adjustment year and files a final partnership return for the partnership taxable year of such partnership, the former partners for purposes of this section are the partners of the partnership during the partnership taxable year for which a final partnership return is filed.
(e) Taking adjustments into account —(1) In general. For purposes of paragraph (a) of this section, a former partner of a partnership that ceases to exist takes a partnership adjustment into account as if the partnership had made an election under section 6226 (regarding the alternative to payment of the imputed underpayment). A former partner must take into account the former partner's share of a partnership adjustment as set forth in the statement described in paragraph (e)(2) of this section in accordance with § 301.6226-3.
(2) Statements furnished to former partners. If a partnership is notified by the IRS that the partnership has ceased to exist as described in paragraph (b)(1) of this section, the partnership must furnish to each former partner a statement reflecting such former partner's share of the partnership adjustment required to be taken into account under this section and file a copy of such statement with the IRS in accordance with the rules under § 301.6226-2, except that—
(i) The adjustments are taken into account by the applicable former partner (as described in paragraph (d) of this section), rather than the reviewed year partners (as defined in § 301.6241-1(a)(9)); and
(ii) The partnership must furnish statements to the former partners and file the statements with the IRS no later than 60 days after the later of the date of the notification to the partnership that the IRS has determined that the partnership has ceased to exist or the date the adjustment takes effect, as described in paragraph (c) of this section.
(3) Authority to issue statements. If any statements required by paragraph (e) of this section are not timely furnished to a former partner and filed with the IRS in accordance with paragraph (e)(2)(ii) of this section, the IRS may notify the former partner in writing of such partner's share of the partnership adjustments based on the information reasonably available to the IRS at the time such notification is provided. For purposes of paragraph (e) of this section, a notification to a former partner under this paragraph (e)(3) is treated the same as a statement required to be furnished and filed under paragraph (e)(2) of this section.
(f) Examples. The following examples illustrate the provisions of this section. For purposes of the examples, all partnerships and partners are calendar year taxpayers and each partnership is subject to the provisions of subchapter C of chapter 63 of the Code (unless otherwise stated).
(1) Example 1. The IRS initiates a proceeding under subchapter C of chapter 63 with respect to the 2020 partnership taxable year of Partnership. During 2023, in accordance with section 6235(b), Partnership extends the period of limitations on adjustments under section 6235(a) until December 31, 2025. However, on July 31, 2024, Partnership terminates within the meaning of section 708(b)(1). Based on the prior termination under section 708(b)(1), the IRS determines that Partnership ceased to exist, as defined in paragraph (b) of this section, on September 16, 2024. On February 1, 2025, the IRS mails Partnership a notice of final partnership adjustment (FPA) that determines partnership adjustments that result in a single imputed underpayment. Partnership does not timely file a petition under section 6234 and does not make a valid election under section 6226. Partnership files its final return of partnership income on October 15, 2024, listing A and B, both individuals, as the partners for its final taxable year ending July 31, 2024. Accordingly, under paragraph (d) of this section, A and B are former partners. Therefore, A and B are required to take their share of the partnership adjustments determined in the FPA into account under paragraph (e) of this section.
(2) Example 2. The IRS initiates a proceeding under subchapter C of chapter 63 with respect to the 2020 partnership taxable year of P, a partnership. G, a partnership that has an election under section 6221(b) in effect for the 2020 taxable year, is a partner of P during 2020 and for every year thereafter. On February 3, 2025, the IRS mails P an FPA that determines partnership adjustments that result in a single imputed underpayment. P does not timely file a petition under section 6234 and does not make a timely election under section 6226. On March 21, 2025, the IRS determines that P has ceased to exist because P did not make an election under section 6226, P's account is currently not collectible, and the IRS does not expect P will be able to pay the imputed underpayment. G terminated under section 708(b)(1) on December 31, 2024. On March 3, 2025, the IRS determines that G ceased to exist in 2024 for purposes of this section in accordance with paragraph (b) of this section. J and K, individuals, were the only partners of G during 2024. Therefore, under paragraph (d)(1)(ii) of this section, J and K, the partners of G during G's 2024 partnership taxable year, are the former partners of G for purposes of this section. Therefore, J and K are required to take into account their share of the adjustments contained in the statement furnished by P to G in accordance with paragraph (e) of this section.
(g) Applicability date. This section applies to any determinations made with respect to taxable years ending on or after November 20, 2020.
§ 301.6241-4   Payments nondeductible.
(a) Payments nondeductible. No deduction is allowed under subtitle A of the Internal Revenue Code (Code) for any payment required to be made by a partnership under subchapter C of chapter 63 of the Code (subchapter C of chapter 63). Payment by a partnership of any amount required to be paid under subchapter C of chapter 63, including any imputed underpayment (as defined in § 301.6241-1(a)(3)), or interest, penalties, additions to tax, or additional amounts with respect to an imputed underpayment, is treated as an expenditure described in section 705(a)(2)(B).
(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.
(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.
§ 301.6241-5   Extension to entities filing partnership returns.
(a) Entities filing a partnership return. Except as described in paragraph (c) of this section, an entity that files a partnership return for any taxable year is subject to the provisions of subchapter C of chapter 63 of the Internal Revenue Code (subchapter C of chapter 63) with respect to such taxable year even if it is determined that the entity filing the partnership return was not a partnership for such taxable year. Accordingly, any partnership-related item (as defined in § 301.6241-1(a)(6)(ii)) and any person holding an interest in the entity, either directly or indirectly, at any time during that taxable year are subject to the provisions of subchapter C of chapter 63 for such taxable year.
(b) Partnership return filed but no entity found to exist. Paragraph (a) of this section also applies where a partnership return is filed for a taxable year, but the IRS determines that no entity existed at all for such taxable year. For purposes of applying paragraph (a) of this section, the partnership return is treated as if it were filed by an entity.
(c) Exceptions. Paragraph (a) of this section does not apply to—
(1) Any taxable year for which an election under section 6221(b) is in effect, treating the return as if it were filed by a partnership for the taxable year to which the election relates; and
(2) Any taxable year for which a valid section 761(a) election is made (regarding election out of subchapter K of chapter 1 of the Internal Revenue Code for certain unincorporated organizations).
(d) Applicability date —(1) In general. Except as provided in paragraph (d)(2) of this section, this section applies to partnership taxable years beginning after December 31, 2017, and ending after August 12, 2018.
(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.
§ 301.6241-6   Coordination with other chapters of the Internal Revenue Code.
(a) Coordination with other chapters —(1) In general. Subchapter C of chapter 63 of the Internal Revenue Code (subchapter C of chapter 63) only applies to tax imposed by chapter 1 of the Internal Revenue Code (Code) and not to any tax imposed (including any amount required to be deducted or withheld) under any chapter of the Code other than chapter 1 of the Code (chapter 1), including chapter 2, 2A, 3, or 4 of the Code. Accordingly, for purposes of determining taxes imposed under chapters of the Code other than chapter 1, the Internal Revenue Service (IRS) may make an adjustment to any partnership-related item (as defined in § 301.6241-1(a)(6)(ii)) in a proceeding that is not under subchapter C of chapter 63. To the extent an adjustment or determination is made under subchapter C of chapter 63 for purposes of chapter 1 and is relevant in determining tax imposed under a chapter of the Code other than chapter 1, such adjustment or determination must be taken into account for purposes of determining such tax.
(2) Examples. The following examples illustrate the rules of paragraph (a) of this section as applied to cases in which a partnership has a withholding obligation under chapter 3 or chapter 4 with respect to income that the partnership earns. For purposes of these examples, each partnership is subject to the provisions of subchapter C of chapter 63 of the Code, and the partnership and its partners are calendar year taxpayers.
(i) Example 1. Partnership, a partnership created or organized in the United States, has two equal partners, A and B. A is a nonresident alien who is a resident of Country A, and B is a U.S. citizen. In 2018, Partnership earned $200 of U.S. source royalty income. Partnership was required to withhold 30 percent of the gross amount of the royalty income allocable to A unless Partnership had documentation that it could rely on to establish that A was entitled to a reduced rate of withholding. See §§ 1.1441-1(b)(1) and 1.1441-5(b)(2)(i)(A) of this chapter. Partnership withheld $15 from the $100 of royalty income allocable to A based on its incorrect belief that A is entitled to a reduced rate of withholding under the U.S.-Country A Income Tax Treaty. In 2020, the IRS determines in an examination of Partnership's Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, that Partnership should have withheld $30 instead of $15 on the $100 of royalty income allocable to A because Partnership failed to obtain documentation from A establishing a valid treaty claim for a reduced rate of withholding. The tax imposed on Partnership for its failure to withhold on that income, however, is not a tax imposed by chapter 1. Rather, it is a tax imposed by chapter 3, which is not a partnership-related item under § 301.6241-1(a)(6)(ii). Therefore, in accordance with section 6221(a), the adjustment to increase Partnership's withholding tax liability by $15 is not determined under subchapter C of chapter 63, and instead must be determined as part of the Form 1042 examination.
(ii) Example 2. Partnership, a partnership created or organized in the United States, has two equal partners, A and B. A is a nonresident alien who is a resident of Country A, and B is a U.S. citizen. In 2018, Partnership earned $100 of U.S. source dividend income. Partnership was required to report the dividend income on its 2018 Form 1065, U.S. Return of Partnership Income, and withhold 30 percent of the gross amount of the dividend income allocable to A unless Partnership had documentation that it could rely on to establish that A was entitled to a reduced rate of withholding. See §§ 1.1441-1(b)(1) and 1.1441-5(b)(2)(i)(A) of this chapter. In 2020, in an examination of Partnership's Form 1042, the IRS determines that Partnership earned but failed to report the $100 of U.S. source dividend income in 2018. The adjustment to increase Partnership's dividend income by $100 is an adjustment to a partnership-related item. The tax imposed on Partnership for its failure to withhold on that income, however, is not a tax imposed by chapter 1; rather, it is a tax imposed by chapter 3. Pursuant to § 301.6221(a)-1(a), only chapter 1 tax attributable to adjustments to partnership-related items is assessed under subchapter C of chapter 63. Therefore, because the tax imposed with respect to the adjustment is a chapter 3 tax, under paragraph (a)(1) of this section, the IRS may determine, assess, and collect chapter 3 tax attributable to an adjustment to a partnership-related item without conducting a proceeding under subchapter C of chapter 63. Accordingly, the IRS may determine the chapter 3 tax in the examination of Partnership's Form 1042 by adjusting Partnership's withholding tax liability by an additional $15 for failing to withhold on the $50 of dividend income allocable to A. However, the IRS must initiate an administrative proceeding under subchapter C of chapter 63 to make any adjustments for purposes of chapter 1 attributable to the income. If the IRS subsequently initiates an administrative proceeding under subchapter C of chapter 63 and makes an adjustment to the same item of income, the portion of the dividend income allocable to A will be disregarded in the calculation of the total netted partnership adjustment to the extent that the chapter 3 tax has been collected with respect to such income. See § 301.6225-1(b)(3).
(b) Coordination with chapters 3 and 4 —(1) In general. In the case of any tax imposed under chapter 3 or chapter 4 that is determined with respect to a partnership adjustment determined under subchapter C of chapter 63 for purposes of chapter 1, such tax is determined with respect to the reviewed year (as defined in § 301.6241-1(a)(8)) and is imposed (or required to be deducted and withheld) with respect to the adjustment year (as defined in § 301.6241-1(a)(1)).
(2) Definitions. The following definitions apply for purposes of this paragraph (b) and the regulations under subchapter C of chapter 63.
(i) Amount subject to withholding. The term amount subject to withholding means an amount subject to withholding (as defined in § 1.1441-2(a) of this chapter), a withholdable payment (as defined in § 1.1473-1(a) of this chapter), or the allocable share of effectively connected taxable income (as computed under § 1.1446-2(b) of this chapter).
(ii) Chapter 3. The term chapter 3 means sections 1441 through 1464 of the Code, but does not include section 1443(b) of the Code.
(iii) Chapter 4. The term chapter 4 means sections 1471 through 1474 of the Code.
(3) Partnership pays an imputed underpayment. If a partnership pays an imputed underpayment (as determined under § 301.6225-1(b)) and the total netted partnership adjustment (as calculated under § 301.6225-1(b)(2)) includes a partnership adjustment to an amount subject to withholding, the partnership is treated as having paid (at the time that the imputed underpayment is paid) the amount required to be withheld with respect to that partnership adjustment under chapter 3 or chapter 4 for purposes of applying §§ 1.1463-1 and 1.1474-4 of this chapter. See § 301.6225-1(b)(3) for the coordination rule that applies for calculating an imputed underpayment when an adjustment is made to an amount subject to withholding for which tax has been collected under chapter 3 or chapter 4.
(4) Partnership makes an election under section 6226 with respect to an imputed underpayment —(i) In general. A partnership that makes an election under § 301.6226-1 with respect to an imputed underpayment must pay the amount of tax required to be withheld under chapter 3 or chapter 4 on the amount of any adjustment set forth in the statement described in § 301.6226-2(a) to the extent that it is an adjustment to an amount subject to withholding, and the IRS has not already collected tax attributable to the adjustment under chapter 3 or chapter 4. The partnership must pay the amount due under this paragraph (b)(4)(i) on or before the due date of the partnership return for the adjustment year (without regard to extension), and must make the payment in the manner prescribed by the IRS in forms, instructions, and other guidance. For the rules governing partners subject to the taxes imposed by chapters 3 and 4 when the partner receives a statement under § 301.6226-2, see § 301.6226-3(f). See § 301.6226-3(e)(3)(v) for the application of the rules of this paragraph (b)(4) to pass-through partners (as defined in § 301.6241-1(a)(5)).
(ii) Reduced rate of tax. A partnership may reduce the amount of tax it is required to pay under paragraph (b)(4)(i) of this section to the extent that it can associate valid documentation from a reviewed year partner pursuant to the regulations under chapter 3 or chapter 4 (other than pursuant to § 1.1446-6 of this chapter) with the portion of the adjustment that would have been subject to a reduced rate of tax in the reviewed year. For this purpose, the partnership may rely on documentation that the partnership possesses that is valid with respect to the reviewed year (determined without regard to the expiration after the reviewed year of any validity period prescribed in § 1.1441-1(e)(4)(ii), § 1.1446-1(c)(2)(iv)(A), or § 1.1471-3(c)(6)(ii) of this chapter), or new documentation that the partnership obtains from the reviewed year partner that includes a signed affidavit stating that the information and representations associated with the documentation are accurate with respect to the reviewed year.
(iii) Reporting requirements. A partnership required to pay tax under paragraph (b)(4)(i) of this section must file the appropriate return and issue information returns as required by regulations under chapter 3 or chapter 4. For return and information return requirements, see §§ 1.1446-3(d)(1)(iii); 1.1461-1(b), (c); and 1.1474-1(c), (d) of this chapter. The partnership must file the return and issue information returns for the year that includes the date on which the partnership pays the tax required to be withheld under paragraph (b)(4)(i) of this section. The partnership must report the information on the return and information returns in the manner prescribed by the IRS in forms, instructions, and other guidance.
(iv) Partners subject to withholding. A reviewed year partner that is subject to withholding under paragraph (b)(4)(i) of this section must follow the rules under § 301.6226-3(f).
(c) Applicability date —(1) In general. Except as provided in paragraph (c)(2) of this section, this section applies to partnership taxable years beginning after December 31, 2017, and ending after August 12, 2018.
(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.
§ 301.6241-7   Treatment of special enforcement matters.
(a) Items that involve special enforcement matters. In accordance with section 6241(11)(B) of the Internal Revenue Code (Code), the partnership-related items (as defined in § 301.6241-1(a)(6)(ii)) described in this section have been determined to involve special enforcement matters. If the rules in this section apply, only the portion of the partnership-related item to which the special enforcement matter applies may be adjusted without regard to subchapter C of chapter 63. Nothing in this section prohibits the Internal Revenue Service (IRS) from adjusting the entire partnership-related item under subchapter C of chapter 63. See paragraph (i) of this section for rules coordinating adjustments made under subchapter C of chapter 63 with adjustments made without regard to subchapter C of chapter 63.
(b) Partnership-related items underlying items that are not partnership-related items —(1) In general. The IRS may determine that the rules of subchapter C of chapter 63 of the Code (subchapter C of chapter 63) do not apply to an adjustment to a partnership-related item of a partnership if—
(i) An examination is being conducted of a person other than the partnership;
(ii) A determination regarding a partnership-related item is made, as part of, or underlying, an adjustment to an item that is not a partnership-related item of the person described in paragraph (b)(1)(i) of this section; and
(iii) The treatment of the partnership-related item on the return of the partnership under section 6031(a) or in the partnership's books and records is based in whole or in part on information provided by the person described in paragraph (b)(1)(i) of this section from that person's books and records.
(2) Example. The following example illustrates the provisions of paragraph (b)(1) of this section. For purposes of this example, the partnership has no liabilities, is subject to subchapter C of chapter 63, and the partnership and partner each has a calendar taxable year. On June 1, 2018, A acquires an interest in Partnership by contributing Asset to Partnership in a section 721 contribution (Contribution). Under section 722, A claims a basis in its interest in Partnership of $50 equal to A's purported adjusted basis in Asset at the time of the Contribution. Partnership claims a basis in Asset of $50 under section 723 equal to A's purported adjusted basis in Asset as of June 1, 2018, based on information A provided to Partnership as part of the Contribution. There is no activity in Partnership that gives rise to any other partnership-related items between June 1, 2018, and June 2, 2019. On June 2, 2019, A sells A's interest in Partnership to B for $100 in cash and reports a gain of $50 based on A's purported adjusted basis in its interest in Partnership of $50. The IRS opens an examination of A and determines that A's adjusted basis in its interest in Partnership should be $30 instead of the $50 claimed by A because A's Contribution to Partnership should have been $30 instead of $50. Under paragraph (b) of this section, the IRS may determine that the rules of subchapter C of chapter 63 do not apply to the Contribution and make a determination about the Contribution (which is a partnership-related item under § 301.6241-1(a)(6)(v)(C)) as part of an adjustment to A's adjusted basis in its interest in Partnership (which is not a partnership-related item). The IRS may make this determination because Partnership's reported basis in Asset was based on the information provided by A. Because A's adjusted basis in A's interest in Partnership is reduced to $30, the total gain from the sale of A's interest in Partnership is increased to $70 ($50 as originally reported plus $20 as adjusted by the IRS). In accordance with paragraph (h)(2) of this section, if A's basis in its interest in Partnership is adjusted based on a determination about the Contribution, Partnership and the other partners of Partnership are not bound by any determination regarding the Contribution resulting from the examination of A and no adjustment is required to be made to their returns under this section.
(c) Termination and jeopardy assessment. For any taxable year of a partner or indirect partner for which an assessment of income tax under section 6851 or section 6861 is made, the IRS may adjust any partnership-related item with respect to such partner or indirect partner as part of making an assessment of income tax under section 6851 or section 6861 without regard to subchapter C of chapter 63.
(d) Criminal investigations. For any taxable year of a partner or indirect partner for which the partner or indirect partner is under criminal investigation, the IRS may adjust any partnership-related item with respect to such partner or indirect partner without regard to subchapter C of chapter 63.
(e) Indirect methods of proof of income. The IRS may adjust any partnership-related item as part of a determination of any deficiency (or portion thereof) of the partner or indirect partner that is based on an indirect method of proof of income without regard to subchapter C of chapter 63.
(f) Special relationships and extensions of the partner's period of limitations. If the period of limitations under section 6235 on making partnership adjustments has expired for a taxable year, the IRS may adjust any partnership-related item that relates to any item or amount for which the partner's period of limitations on assessment of tax imposed by chapter 1 of the Code (chapter 1) has not expired for the taxable year of the partner or indirect partner, without regard to subchapter C of chapter 63 if—
(1) The direct or indirect partner is related to the partnership under section 267(b) or 707(b); or
(2) Under section 6501(c)(4), the direct or indirect partner agrees, in writing, to extend the partner's section 6501 period of limitations on assessment for the taxable year but only if the agreement expressly provides that the partner is extending the time to adjust and assess any tax attributable to partnership-related items for the taxable year.
(g) Penalties and taxes imposed on the partnership under chapter 1. The IRS may adjust any tax, penalties, additions to tax, or additional amounts imposed on, and which are the liability of the partnership under chapter 1 without regard to subchapter C of chapter 63. The IRS may also make determinations about any partnership-related item, without regard to subchapter C of chapter 63, as part of any adjustment made to the amount and applicability of the tax, penalty, addition to tax, or additional amount imposed on the partnership being determined without regard to subchapter C of chapter 63. Any determinations under this paragraph (g) will be treated as a determination under a chapter of the Code other than chapter 1 for purposes of § 301.6241-6.
(h) Determination that subchapter C of chapter 63 does not apply —(1) Notification. If the IRS determines, in accordance with paragraph (b), (c), (d), (e), (f), or (g) of this section, that some or all of the rules under subchapter C of chapter 63 do not apply to any partnership-related item (or portion thereof), then the IRS will notify, in writing, the taxpayer to whom the adjustments are being made.
(2) Effect of adjustments not made under subchapter C of chapter 63. Any final decision with respect to any partnership-related item adjusted in a proceeding not under subchapter C of chapter 63 is not binding on any person that is not a party to the proceeding. For example, if the partnership or any other partner does not become a party to a partner-level proceeding conducted as a result of the application of this section, the partnership and those other partners are not bound to the adjustments determined in the partner-level proceeding.
(i) Coordination with adjustments made at the partnership level. This section will not apply to the extent the partner can demonstrate adjustments to partnership-related items included in the deficiency or an adjustment by the IRS were—
(1) Previously taken into account under subchapter C of chapter 63 by the person being examined; or
(2) Included in an imputed underpayment paid by a partnership (or pass-through partner) for any taxable year in which the partner was a reviewed year partner or indirect partner but only if the amount included in the deficiency or adjustment exceeds the amount reported by the partnership to the partner that was either reported by the partner or indirect partner or is otherwise included in the deficiency or adjustment determined by the IRS.
(j) Elections resulting in payments to a partnership. The IRS may adjust any election that results or could result in a payment to the partnership in lieu of a Federal tax credit or deduction without regard to subchapter C of chapter 63. The IRS may also make determinations, without regard to subchapter C of chapter 63, about the payment itself as well as any partnership-related item relevant to adjusting the election or the payment.
(k) Applicability date —(1) In general. Except as provided in paragraphs (k)(2) (relating to paragraph (b) of this section) and (k)(3) of this section (relating to paragraph (j) of this section), this section applies to partnership taxable years ending on or after November 20, 2020. Notwithstanding the preceding sentence, upon agreement between the partner under examination and the IRS, any provision of this section except for paragraph (b) of this section may apply to any taxable year of a partner that relates to a partnership taxable year subject to subchapter C of chapter 63 (as amended) that ended before November 20, 2020. In addition, a partnership and the IRS may agree to apply paragraph (g) to any partnership taxable year ended before November 20, 2020, that is subject to subchapter C of chapter 63, as amended.
(2) Partnership-related items underlying items that are not partnership-related items. Paragraph (b) of this section applies to partnership taxable years beginning after December 20, 2018. Notwithstanding the preceding sentence, upon agreement between the partner under examination and the IRS, paragraph (b) of this section may apply to any taxable year of a partner that relates to a partnership taxable year subject to subchapter C of chapter 63, as amended, that ended on or before December 20, 2018.
(3) Elections resulting in payments to a partnership. Paragraph (j) of this section applies to taxable years ending on or after June 21, 2023.
§ 301.6301-1   Collection authority.
The taxes imposed by the internal revenue laws shall be collected by district directors of internal revenue. See, however, section 6304, relating to the collection of certain taxes under the provisions of the Tariff Act of 1930 (19 U.S.C. ch. 4).
§ 301.6302-1   Manner or time of collection of taxes.
(a) Employment and excise taxes. For provisions relating to the manner or time of collection of certain employment and excise taxes and deposits in connection with the payment thereof, see the regulations relating to the particular tax.
(b) Income taxes. (1) For provisions relating to the deposits of income and estimated income taxes of certain corporations, see § 1.6302-1 of this chapter (Income Tax Regulations).
(2) For provisions relating to the deposits of tax required to be withheld under chapter 3 of the Code on nonresident aliens and foreign corporations and tax-free covenant bonds, see § 1.6302-2 of this chapter.
(c) Effective/applicability date. This section applies to deposits and payments made after December 31, 2010.
§ 301.6303-1   Notice and demand for tax.
(a) General rule. Where it is not otherwise provided by the Code, the district director or the director of the regional service center shall, after the making of an assessment of a tax pursuant to section 6203, give notice to each person liable for the unpaid tax, stating the amount and demanding payment thereof. Such notice shall be given as soon as possible and within 60 days. However, the failure to give notice within 60 days does not invalidate the notice. Such notice shall be left at the dwelling or usual place of business of such person, or shall be sent by mail to such person's last known address. For further guidance regarding the definition of last known address, see § 301.6212-2.
(b) Assessment prior to last date for payment. If any tax is assessed prior to the last date prescribed for payment of such tax, demand that such tax be paid will not be made before such last date, except where it is believed collection would be jeopardized by delay.
§ 301.6305-1   Assessment and collection of certain liability.
(a) Scope. Section 6305(a) requires the Secretary of the Treasury or his delegate to assess and collect amounts which have been certified by the Secretary of Health and Human Services as the amount of a delinquency determined under a court order, or an order of an administrative process established under State law, for support and maintenance of a child or of a child and the parent with whom the child is living. These amounts, referred to as “child and spousal support”, are to be collected in the same manner and with the same powers exercised by the Secretary of the Treasury or his delegate in the collection of an employment tax which would be jeopardized by delay. However, where the assessment is the first assessment against an individual for a delinquency described in this paragraph for a particular individual or individuals, the collection is to be stayed for a period of 60 days following notice and demand. In addition, no interest or penalties (with the exception of the penalties imposed by sections 6332(c)(2) and 6657) shall be assessed or collected on the amounts, paragraphs (4), (6) and (8) of section 6334(a) (relating to property exempt from levy) shall not apply; and, there shall be exempt from levy so much of the salary, wages, or other income of the individual which is subject to garnishment pursuant to a judgment entered by a court for the support of his or her minor children. Section 6305(b) provides that sole jurisdiction for any action brought to restrain or review assessment and collection of the certified amounts shall be in a State court or a State administrative agency.
(b) Assessment and collection —(1) General rule. Upon receipt of a certification or recertification from the Secretary of Health and Human Services or his delegate under section 452(b) of title IV of the Social Security Act as amended (relating to collection of child and spousal support obligations with respect to an individual), the district director or his delegate shall assess and collect the certified amount (or recertified amount). Except as provided in paragraph (c) of this section, the amount so certified shall be assessed and collected in the same manner, with the same powers, and subject to the same limitations as if the amount were an employment tax the collection of which would be jeopardized by delay. However, the provisions of subtitle F with respect to assessment and collection of taxes shall not apply with respect to assessment and collection of a certified amount where such provisions are clearly inappropriate to, and incompatible with, the collection of certified amounts generally. For example, section 6861(g) which allows the Secretary or his delegate to abate a jeopardy assessment if he finds a jeopardy does not exist will not apply.
(2) Method of assessment. An assessment officer appointed by the district director pursuant to § 301.6203-1 to make assessments of tax shall also make assessments of certified amounts. The assessment of a certified amount shall be made by the assessment officer signing the summary record of assessment. The date of assessment is the date the summary record is signed by the assessment officer. The summary record, through supporting records as necessary, shall provide—
(i) The assessed amount;
(ii) The name, social security number, and last known address of the individual owing the assessed amount. For further guidance regarding the definition of last known address, see § 301.6212-2;
(iii) A designation of the assessed amount as a certified amount, together with the date on which the amount was certified and the name, position, and governmental address of the officer of the Department of Health and Human Services who certified the amount;
(iv) The period to which the child and spousal support obligation represented by the certified amount relates;
(v) The State in which was entered the court or administrative order giving rise to the child and spousal support obligation represented by the certified amount;
(vi) The name of the person or persons to whom the child and spousal support obligation represented by the certified amount is owed; and
(vii) The name of the child or children or the parent of the child or children for whose benefit the child and spousal support obligation exists.
(3) Supplemental assessments and abatements. If any assessment is incomplete or incorrect in any material respect, the district director or his delegate may make a supplemental assessment or abatement but only for the purpose of completing or correcting the original assessment. A supplemental assessment will not be used as a substitute for an additional assessment against an individual.
(4) Method of collection. (i) The district director or his delegate shall make notice and demand for immediate payment of certified amounts. Upon failure or refusal to pay such amounts, collection by levy shall be lawful without regard to the 10-day waiting period provided in section 6331(a). However, in the case of certain first assessments, paragraph (c)(4) of this section provides a rule for a stay of collection for 60 days. For purposes of collection, refunds of any internal revenue tax owed to the individual may be offset against a certified amount.
(ii) The district director or his delegate shall make diligent and reasonable efforts to collect certified amounts as if such amounts were taxes. He shall have no authority to compromise a proceeding by collection of only part of a certified amount in satisfaction of the full certified amount owing. However, he may arrange for payment of a certified amount by installments where advisable.
(iii) The district director or his delegate may offset the amount of any overpayment of any internal revenue tax (as described in section 301.6401-1) to be refunded to the person making the overpayment by the amount of any past-due support (as defined in the regulations under section 6402) owed by the person making the overpayment. The amounts offset under section 6402(c) may be amounts of child and spousal support certified (or recertified) for collection under section 6305 and this section or they may be amounts of past-due support of which the Secretary of the Treasury has been notified under section 6402(c) and the regulations under that section.
(5) Credits or refunds. In the case of any overpayment of a certified amount, the Secretary of the Treasury or his delegate, within the period of limitations for credit or refund of employment taxes, may credit the amount of the overpayment against any liability in respect of an internal revenue tax on the part of the individual who made the overpayment and shall refund any balance to the individual. However, the full amount of any overpayment collected by levy upon property described in paragraph (c)(2) (i), (ii), or (iii) of this section shall be refunded to the individual. For purposes of applying this subparagraph, the rules of § 301.6402-2 apply where appropriate.
(6) Disposition of certified amounts collected. Any certified amount collected shall be deposited in the general fund of the United States, and the officer of the Department of Health and Human Services who certified the amount shall be promptly notified of its collection. There shall be established in the Treasury, pursuant to section 452 of title IV of the Social Security Act as amended, a revolving fund which shall be available to the Secretary of Health and Human Services or his delegate, without fiscal year limitation, for distribution to the States in accordance with the provisions of section 457 of the Act. Section 452(c)(2) of the Act appropriates to this revolving fund out of any monies not otherwise appropriated, amounts equal to the certified amounts collected under this paragraph reduced by the amounts credited or refunded as overpayments of the certified amounts so collected. The certified amounts deposited shall be transferred at least quarterly from the general fund of the Treasury to the revolving fund on the basis of estimates made by the Secretary of the Treasury or his delegate. Proper adjustments shall be made in the amounts subsequently transferred to the extent prior estimates were in excess of or less than the amounts required to be transferred. See, however, paragraph (c)(1) of this section for the special rule requiring retention in the general fund of certain penalties which may be collected.
(c) Additional limitations and conditions —(1) Interest and penalties. No interest, penalties or additional amounts, other than normal and reasonable collection costs, may be assessed or collected in addition to the certified amount, other than the penalty imposed by section 6332(c)(2) for failure to surrender property subject to levy and the penalty imposed by section 6657 for the tender of bad checks. Any such penalties and collection costs, if collected, will not be treated as part of the certified amount and will be retained by the United States as a part of its general fund. No interest shall be allowed or paid on any overpayment of a certified amount.
(2) Property not exempt from levy. In addition to property not exempt from levy under section 6334(c) and the regulations thereunder, the following property shall not be exempt from a levy to collect a certified amount:
(i) Unemployment benefits described in section 6334(a)(4);
(ii) Certain annuities and pension payments described in section 6334(a)(6); or
(iii) Salary, wages, or other income described in section 6334(a)(8).
(3) Property exempt from levy. In addition to property exempt from levy under section 6334(a) and the regulations thereunder, other than property described in paragraph (c)(2) (i), (ii), or (iii) of this section, there shall be exempt from levy to collect a certified amount so much of the salary, wages, or other income of an individual as is withheld therefrom in garnishment pursuant to judgment entered by a court of competent jurisdiction for the support of minor children of the individual.
(4) First assessment. In the case of a first assessment against an individual for a certified amount in whole or part for the benefit of a particular child or children or the child or children and their parent, the collection of the certified amount shall be stayed for the period of 60 days immediately following notice and demand as described in section 6303. However, no other stay of the collection of a certified amount may be granted. Thus, the provisions of section 6863(a), relating to bonds to stay collection of jeopardy assessments, shall not apply to the collection of certified amounts.
(5) Priority of liens. A lien for a certified amount shall be valid as against a lien for taxes imposed by section 6321 only if the date of assessment of the certified amount precedes the date of assessment of the taxes. However, no amount collected by levy upon property described in paragraph (c)(2) (i), (ii), or (iii) of this section may be applied other than in whole or partial satisfaction of certified amounts. In the case of two liens for certified amounts, the lien for the certified amount which is first assessed shall be valid as against the lien for the certified amount which is later assessed.
(6) Statute of limitations on collections. The periods of limitation on collection of taxes after assessment prescribed by section 6502 shall apply to the collection of certified (or recertified) amounts. Such periods of limitation with respect to a certified amount shall terminate upon recertification of the amount, and the period of limitation prescribed by section 6502 shall then apply and commence to run with respect to the recertified amount.
(d) Review of assessments and collections —(1) Federal courts. No court of the United States established under article I or article III of the Constitution has jurisdiction of any legal or equitable action to restrain or review the assessment or collection of certified amounts by the district director or his delegate. See, however, paragraph (d)(3) of this section for the rule that the prohibition of this paragraph (d)(1) does not preclude courts established for the District of Columbia from exercising jurisdiction over certain actions.
(2) Secretary of the Treasury. Neither the Secretary of the Treasury nor his delegate may subject to review the assessment or collection of certified amounts in any legal, equitable, or administrative proceeding.
(3) State courts. This paragraph (d) does not preclude a State court or appropriate State agency, as the case may be, from exercising jurisdiction over a legal, equitable, or administrative action against the State by an individual to determine his liability for any certified amount assessed against him and collected, or to recover any such certified amount collected, under section 6305 and this section. For purposes of the preceding sentence, the term “State” includes the District of Columbia.
(e) Internal Revenue regional service centers. For purposes of this section, the terms “district director or his delegate” and “district director” include the director of the Internal Revenue service center or his delegate, as the case may be.
§ 301.6311-1   Payment by check or money order.
(a) Authority to receive —(1) In general. (i) District directors, Service Center directors, and Compliance Center directors (director) may accept checks or drafts drawn on any financial institution incorporated under the laws of the United States or under the laws of any State, the District of Columbia, or any possession of the United States, or money orders in payment for internal revenue taxes, provided the checks, drafts, or money orders are collectible in United States currency at par, and subject to the further provisions contained in this section. The director may accept the checks, drafts, or money orders in payment for internal revenue stamps to the extent and under the conditions prescribed in paragraph (a)(2) of this section. A check or money order in payment for internal revenue taxes or internal revenue stamps should be made payable to the United States Treasury. A check or money order is payable at par only if the full amount thereof is payable without any deduction for exchange or other charges. As used in this section, the term “money order” means: ( a ) U.S. postal, bank, express, or telegraph money order; ( b ) money order issued by a domestic building and loan association (as defined in section 7701(a)(19)) or by a similar association incorporated under the laws of a possession of the United States; ( c ) a money order issued by such other organization as the Commissioner may designate; and ( d ) a money order described in subdivision (ii) of this subparagraph in cases therein described. However, the director may refuse to accept any personal check whenever he or she has good reason to believe that such check will not be honored upon presentment.
(ii) An American citizen residing in a country with which the United States maintains direct exchange of money orders on a domestic basis may pay his tax by postal money order of such country. For a list of such countries, see section 171.27 of the Postal Manual of the United States.
(iii) If one check or money order is remitted to cover two or more persons' taxes, the remittance should be accompanied by a letter of transmittal clearly identifying—
( a ) Each person whose tax is to be paid by the remittance;
( b ) The amount of the payment on account of each such person; and
( c ) The kind of tax paid.
(2) Payment for internal revenue stamps. The director may accept checks, drafts, and money orders described in paragraph (a)(1) of this section in payment for internal revenue stamps. However, the director may refuse to accept any personal check whenever he or she has good reason to believe that such check will not be honored upon presentment.
(b) Checks or money orders not paid —(1) Ultimate liability. The person who tenders any check (whether certified or uncertified, cashier's, treasurer's, or other form of check or draft) or money order in payment for taxes or stamps is not released from his or her liability until the check, draft, or money order is paid; and, if the check, draft, or money order is not duly paid, the person shall also be liable for all legal penalties and additions, to the same extent as if such check, draft, or money order had not been tendered.
(2) Liability of financial institutions and others. If any certified, treasurer's, or cashier's check, or other guaranteed draft, or money order, is not duly paid, the United States shall have a lien for the amount of such check or draft upon all assets of the financial institution on which drawn, or for the amount of such money order upon the assets of the issuer thereof. The unpaid amount shall be paid out of such assets in preference to any other claims against such financial institution or issuer except the necessary costs and expenses of administration and the reimbursement of the United States for the amount expended in the redemption of the circulating notes of such financial institution. In addition, the Government has the right to exact payment from the person required to make the payment.
(c) Payment in nonconvertible foreign currency. For rules relating to payment of income taxes and taxes under the Federal Insurance Contributions Act in nonconvertible foreign currency, see section 6316 and the regulations thereunder.
(d) Financial institution. For purposes of section 6311 and this section, financial institution includes but is not limited to—
(1) A bank or trust company (as defined in section 581);
(2) A domestic building and loan association (as defined in section 7701(a)(19));
(3) A mutual savings bank (including but not limited to a mutual savings bank as defined in section 591(b));
(4) A credit union (including both state and federal credit unions, and including but not limited to a credit union as defined in section 501(c)(14)); and
(5) A regulated investment company (as defined in section 851(a)).