TECHNICAL EXPLANATION OF 

THE TAX TECHNICAL CORRECTIONS ACT OF 2016

Prepared by the Staff

of the

JOINT COMMITTEE ON TAXATION

December 6, 2016

JCX-91-16
i

CONTENTS

Page

INTRODUCTION ..............................................................................................................................1

DESCRIPTION OF THE TAX TECHNICAL CORRECTIONS ACT OF 2016..............................2

A. Title I − Tax Technical Corrections........................................................................................2

B. Title II − Technical Corrections Related to Partnership Audit Rules (sec. 1101 of the 

Bipartisan Budget Act of 2015 and secs. 6221-6241 of the Code).........................................9

C. Title III − Other Corrections.................................................................................................19

D. Title IV − Clerical Corrections and Deadwood ....................................................................20
1

INTRODUCTION

This document,1 prepared by the staff of the Joint Committee on Taxation, provides a 

technical explanation of the tax technical corrections including those with respect to partnership 

audits, other corrections, and clerical and deadwood corrections contained in the Tax Technical 

Corrections Act of 2016, as introduced on December 6, 2016, in the House of Representatives as 

H.R. 6439 and in the Senate as S. 3506.

 1

 This document may be cited as follows: Joint Committee on Taxation, Technical Explanation of the Tax 

Technical Corrections Act of 2016 (JCX-91-16), December 6, 2016. This document can be found on the Joint 

Committee on Taxation website at www.jct.gov.
2

DESCRIPTION OF THE TAX TECHNICAL CORRECTIONS ACT OF 2016

The bill includes technical corrections, other corrections, and clerical and deadwood 

corrections to recently enacted tax legislation. Except as otherwise provided, the amendments 

made by the technical corrections and other corrections contained in the bill take effect as if 

included in the original legislation to which each amendment relates.

A. Title I − Tax Technical Corrections

Amendments relating to the Protecting Americans from Tax Hikes (“PATH”) Act of 2015 

(Division Q of the Consolidated Appropriations Act, 2016)

Transit parity (Act sec. 105).−Under Code section 132(f)(2) as in effect before the 

changes made by the Act, the monthly limit on the fringe benefit exclusion for employerprovided parking was $175, and the monthly limit on employer-provided benefits for mass 

transit and van pooling combined was $100. These monthly limits were indexed under Code 

section 132(f)(6) using a base year determined by when the particular monthly limit became 

effective – a base year of 1998 for parking and 2001 for transit/vanpooling. Parity between the 

exclusions was provided on a temporary basis from 2009 through 2014. The Act created 

permanent parity in the exclusions by changing the monthly transit/vanpooling limit in Code 

section 132(f)(2) to $175. However, the Act failed to include a conforming change to repeal the 

base year rule in Code section 132(f)(6) for transit/vanpooling. The provision repeals the 

transit/vanpooling base year rule.

Research credit: not reinstate alternative incremental credit (Act sec. 121).−The 

alternative incremental credit expired in 2008. The provision clarifies that the alternative 

incremental credit is not reinstated by the Act, and makes conforming changes.

Bonus depreciation (Act sec. 143).−The provision clarifies that, among the criteria in 

the Act defining certain property having a longer production period that is treated as qualified 

property, the requirement that the property be acquired pursuant to a written contract before 2020 

requires that the contract be a written binding contract. This corrects an unintended error which 

changed prior law.

The provision clarifies that the preproductive period under Code section 168(k)(5)(B)(ii) 

is consistent with the preproduction period under Code section 263A(e)(3).

The provision clarifies that, under the Act’s phase-down with respect to the special rules 

for certain plants bearing fruits and nuts, the phase-down percentages apply to specified plants 

that are planted or grafted in 2018 (40 percent) and 2019 (30 percent), not grafted to a plant that 

has already been planted before 2018 or 2019, respectively.

The Act extends and modifies the additional first-year depreciation deduction for five 

years, generally through 2019 (through 2020 for certain longer-lived and transportation property 

(“LLTP”)). The 50-percent allowance is phased down for property placed in service in taxable 

years beginning after 2017 (after 2018 for LLTP). The provision clarifies that for LLTP placed 

in service in 2018, 50 percent applies to the entire adjusted basis, and that for LLTP placed in 

service in 2019, 40 percent applies to the entire adjusted basis. 
3

The provision clarifies that if, for a taxable year, a taxpayer makes both an election under 

Code section 168(k)(7) not to claim bonus depreciation for all property in a particular class of 

property and an election under Code section 168(k)(4) to claim AMT credits in lieu of bonus 

depreciation, Code section 168(k)(4) does not apply to property in the particular class. This 

corrects an unintended error which changed prior law.

Election out of accelerated recovery periods for qualified Indian reservation 

property (Act sec. 167).−As amended by the Act, Code section 168(j) permits taxpayers to elect 

out of the otherwise applicable accelerated recovery periods in the case of qualified Indian 

reservation property. In general, if section 168(j) applies, there is no AMT adjustment (see 

section 168(j)(3)). The provision clarifies that no AMT adjustment applies in the case of 

qualified Indian reservation property if the taxpayer makes the election out. 

Failure to furnish correct payee statements (Act sec. 202).−The provision clarifies 

Code section 6722(c)(3)(A), relating to failure to furnish correct payee statements, to refer to

payee statements (rather than information returns) that are furnished (rather than filed). A 

corresponding change in the effective date stated in the Act refers to statements that are 

furnished (rather than provided).

Requirements for the issuance of Individual Taxpayer Identification Numbers 

(“ITINs”) (Act sec. 203).−The provision clarifies that community-based Certifying Acceptance 

Agents are among the entities that are available to individuals living abroad who wish to obtain 

ITINs for purposes of meeting their U.S. tax filing obligations.

The provision clarifies that the expiration of ITINs that have not been used for three 

consecutive taxable years is to occur on the date following the due date of the tax return for such 

third consecutive taxable year. For ITINs issued prior to January 1, 2013, the ITIN will expire 

on the applicable date, or if earlier, the day following the due date of the tax return for the third 

consecutive taxable year such ITIN was not used on a return. In the event that such an ITIN has 

not been used for three (or more) consecutive taxable years on the tax return due date for the 

2015 taxable year, such ITIN shall expire on the day following that date. 

The provision clarifies that the effective date of section 203 of the Act, which provides 

that Act section 203 is effective for ITIN applications made after the date of enactment, does not 

prevent the provision relating to outstanding ITINs from taking effect.

Retroactive claims of credits (Act secs. 204, 205, and 206).−The provision conforms a 

reference in Code section 24(e)(2) to the taxpayer identification number (not to the identifying 

number). The provisions remove special effective date rules in each of these Act sections that 

have no practical effect.

Effective date for treatment of credits for certain penalties (Act sec. 209).−The Act 

inadvertently failed to state the effective date for the rule providing a reasonable cause exception 

for erroneous claims for refund or credit. The provision states that the effective date is for claims 

filed after the date of enactment of the Act. 
4

Making American Opportunity Tax Credit permanent (Act secs. 102, 206, 207, 208, 

and 211).−The provision reflects the permanent extension of the American Opportunity Tax 

Credit by eliminating deadwood and consolidating the provisions of Code section 25A.

Restriction on tax-free distributions involving Real Estate Investment Trusts 

(“REITs”) (Act sec. 311).−The provision clarifies that, for purposes of Code section 

355(h)(2)(B), control of a partnership means ownership of at least 80 percent of the profits 

interests and at least 80 percent of the capital interests. That is, control is not limited to exactly 

80 percent ownership.

Ancillary personal property of a REIT (Act sec. 318).−As amended by the Act, Code 

section 856(c)(9) treats ancillary personal property as a real estate asset for purposes of the REIT 

75 percent asset test to the extent that rents attributable to such ancillary personal property are 

treated, under a separate provision, as rents from real property. The provision makes two 

conforming changes with respect to the REIT income tests. First, the provision treats gain from 

the sale or disposition of such ancillary personal property as gain from the sale or disposition of a 

real estate asset for purposes of the REIT income tests. Second, the provision treats gain from 

the sale or disposition of certain obligations secured by mortgages on both real property and 

personal property as gain from the sale or disposition of real property for purposes of the REIT 

income tests.

Exception from Foreign Investment in U.S. Real Property Tax Act (“FIRPTA”) for 

certain stock of REITs (Act sec. 322).−The provision restates provisions of Code section 

897(k) as amended, makes clerical conforming changes, and strikes a modification to a repealed 

provision. 

Further, under Code section 897(k) as amended, the provision addresses the definition of 

a qualified collective investment vehicle that is eligible for benefits of a comprehensive income 

tax treaty with the United States that includes an exchange of information program. Specifically, 

the provision clarifies that the definition can be met only if the dividends article in the treaty 

imposes conditions on the benefits allowable in the case of dividends paid by a REIT.

The provision clarifies the effective date for the determination of domestic control by 

stating that the rule applies with respect to each testing period ending on or after the date of 

enactment (not that the rule takes effect on the date of enactment).

FIRPTA exception for qualified foreign pension funds (Act sec. 323).−As amended 

by the Act, Code section 897(l)(1) provides that Code section 897 does not apply (i) to any 

United States real property interest held directly (or indirectly through one or more partnerships) 

by, or (ii) to any distribution received from a REIT by, a qualified foreign pension fund or an 

entity all the interests of which are held by a qualified foreign pension fund. The provision 

clarifies that, for purposes of Code section 897, a qualified foreign pension fund is not treated as 

a nonresident alien individual or as a foreign corporation; in other words, in determining the 

U.S. income tax of a qualified foreign pension fund, Code section 897 does not apply. The 

provision provides that, also for that purpose, an entity all the interests of which are held by a 

qualified foreign pension fund is treated as such a fund. 
5

As amended by the Act, Code section 897(l)(2) establishes a five-prong definition of the 

term “qualified foreign pension fund.” The provision revises the second prong of the definition 

to clarify that a government-established fund to provide public retirement or pension benefits 

may qualify, as well as a fund established by more than one employer to provide retirement or 

pension benefits to their employees, such as a multiple-employer or multiemployer plan. In 

addition, the provision makes clarifying changes to the fourth and fifth prongs of the definition.

Election of certain small insurance companies to be taxed only on taxable 

investment income (Act sec. 333).–As amended by the Act, Code section 831(b) requires that 

an otherwise eligible electing insurance company meet one of two diversification requirements. 

The first requires that no more than 20 percent of the company’s net (or if greater, direct) written 

premiums for the taxable year is attributable to any one policyholder. The second, applicable if 

the first is not met, requires that no person holds (directly or indirectly) aggregate interests in the 

company that constitute a percentage of the entire interest in the company that is more than a de 

minimis percentage higher than the percentage of interests in specified assets with respect to the 

company held (directly or indirectly) by a specified holder.

The provision clarifies the first diversification rule to provide a look-through rule with 

respect to an intermediary (for example, an aggregate fund). Specifically, the provision provides 

that in the case of reinsurance or any fronting, intermediary, or similar arrangement, a 

policyholder means each policyholder of the underlying direct written insurance with respect to 

the reinsurance or arrangement.

The provision clarifies the determination of percentages under the second diversification 

rule by making the determination with respect to relevant specified assets. They are defined 

(with respect to any specified holder with respect to any insurance company) to mean the 

aggregate amount of the specified assets, with respect to the insurance company, any interest in 

which is held directly or indirectly by a spouse or specified relation. The provision further 

clarifies that relevant specified assets do not include any specified asset that was acquired by the 

spouse or specified relation by bequest, devise, or inheritance from a decedent for a two-year 

period. Treasury Department guidance under the provision may provide that factors such as 

ownership, premiums, gross revenue, and factors taken into account under applicable State law 

for assessing risk are taken into account, to the extent this is consistent with the purpose of the 

provision to accurately determine percentages based on the real economic arrangement among 

the parties.

Amendments relating to Division P of the Consolidated Appropriations Act, 2016

Treatment of transportation costs of independent refiners (Act sec. 305).−The 

provision clarifies that Code section 199(c)(3)(C) applies for purposes of calculating qualified 

production activities income under Code section 199(c) and for purposes of calculating oil 

related qualified production activities income under Code section 199(d)(9).

The provision clarifies that an independent refiner may elect to apply section 

199(c)(3)(C) to its oil transportation costs for purposes of calculating its deduction under Code 

section 199 (i.e., it is not required to apply the provision to its oil transportation costs). It is 
6

anticipated that the Secretary will issue guidance prescribing the manner in which such election 

shall be made.

Amendments relating to the Fixing America’s Surface Transportation Act (2015)

Revocation or denial of passport in case of certain unpaid taxes

(Act sec. 32101).−The Act provides for judicial review of the Secretary’s certification that an 

individual has a seriously delinquent tax debt, either in a U.S. district court or in the Tax Court.

The provision clarifies that the party against whom a Tax Court petition is filed is the 

Commissioner of the Internal Revenue Service. The provision also provides a tie-breaker rule 

clarifying that the court first acquiring jurisdiction over the action has sole jurisdiction, and 

corrects a cross reference.

Amendments relating to the Surface Transportation and Veterans Health Care Choice 

Improvement Act of 2015

Consistent value for transfer and income tax purposes (Act sec. 2004).−The Act 

generally requires that an heir who inherits property from a decedent claim a basis no greater 

than the final value of the property for estate tax purposes (new Code section 1014(f)). New 

Code section 6662(b)(8) imposes a penalty in the case of an inconsistent estate basis. There is an 

inconsistent estate basis if the basis of property claimed on a return exceeds the basis as 

determined under the consistency requirement set forth in new Code section 1014(f). The 

penalty could be viewed as applying when an heir claims a basis higher than the final estate tax 

value by reason of making basis adjustments relating to post-acquisition events (e.g., 

improvements to the property). This result is not intended. The provision modifies the

definition of inconsistent estate basis to avoid this unintended result.

Mass Transit Account (“MTA”) financing (Act sec. 2008).−The Act changes the 

taxation of liquefied natural gas (LNG) and liquefied petroleum gas (LPG) from a per-gallon 

basis to an energy-equivalent basis. That is, the Act provides that the tax is based on the LNG 

energy equivalent to a gallon of diesel (DGE) (24.3 cents per DGE, which is 6.06 pounds of 

LNG), and on the LPG energy equivalent to a gallon of gasoline (GGE) (18.3 cents per GGE, 

which is 5.75 pounds of LPG). Code section 9503(e)(2) allocates 1.86 cents per gallon of LNG 

and 2.13 cents per gallon of LPG to the MTA of the Highway Trust Fund, but the Act does not 

specifically conform the per-gallon basis to an energy-equivalent basis for purposes of the 

allocation. The provision conforms the per-gallon basis in Code section 9503(e)(2) to the 

energy-equivalent basis, using DGE for LNG and GGE for LPG, to reflect the energy-equivalent 

basis used for the taxes imposed on LNG and LPG. 

Amendments relating to the Stephen Beck, Jr., ABLE Act of 2014

Inflation adjustment for certain civil penalties under the Internal Revenue Code of 

1986 (Act sec. 208).−The Act provides an annual inflation adjustment for fixed-dollar civil tax 

penalties in the case of: (i) Code section 6651(a), failure to file a tax return; (ii) Code section 

6652(c), failure to file or disclose information returns by exempt organizations and certain trusts, 

(iii) Code section 6695, preparation of tax returns for other persons, (iv) Code section 6698, 

failure to file a partnership return, (v) Code section 6699, failure to file an S corporation return, 
7

(vi) Code section 6721, failure to file correct information returns, and (vii) Code section 6722, 

failure to furnish correct payee statements. The provision clarifies that the effective date of the 

annual inflation adjustments added to these civil penalties generally is for returns required to be 

filed, and statements required to be furnished, after December 31, 2014, and in the case of the 

annual inflation adjustment for penalties relating to preparation of tax returns for other persons, 

is for returns or claims for refund filed after December 31, 2014. 

Amendments relating to the American Taxpayer Relief Act of 2012

Reference in definition of a deficiency to American Opportunity Tax Credit

(Act sec. 104).−The provision conforms a reference in Code section 6211(b)(4)(A), relating to 

the definition of a deficiency, to a provision of the American Opportunity Tax Credit that was 

renumbered by the Act.

Amendments relating to the United States–Korea Free Trade Agreement Implementation 

Act (2011)

Increase in penalty on paid preparers who fail to comply with earned income tax 

credit due diligence requirements (Act sec. 501).−The provision clarifies that the effective date 

of the Code section 6695(g) penalty increase is for documents prepared (not returns required to 

be filed) after December 31, 2011.

Amendment relating to SAFETEA-LU

Penalty relating to signs (Act sec. 1125).–Persons engaged in distilled spirits operations 

are required to place and keep conspicuously on the outside of such place of business a sign 

showing the name of such person and denoting the business, or businesses, in which engaged. 

Code section 5681 imposes penalties for failure to post a required sign and posting or displaying 

a false sign. Under Code section 5681(b), a wholesale dealer in liquors may display a distilled 

spirits operations sign only if that person has paid the special occupational tax applicable to those 

wholesalers, payment of the tax being the indication that such person was eligible to post such a 

sign. SAFETEA-LU repealed the special occupational taxes, but did not make a conforming 

change to the penalty provision under 5681(b). The provision corrects the outdated reference in 

the penalty for displaying a false sign. Specifically, the provision modifies Code section 5681(b) 

to provide that a wholesale dealer in liquors may post a sign indicating that it is engaged in 

distilled spirits operations only if that person has complied with the recordkeeping requirements 

required by Code section 5121(a) and the registration requirements under Code section 5124.

Amendment relating to the American Jobs Creation Act of 2004

Rural electric cooperatives (Act sec. 319).–Code section 501(c)(12) of the Code 

provides an income tax exemption for rural electric cooperatives if at least 85 percent of the 

cooperative’s income consists of amounts collected from members for the sole purpose of 

meeting losses and expenses of providing service to its members. The Energy Policy Act of 

2005 made permanent a rule to exclude from the 85 percent test income from transactions related 

to open access transmission if approved by the Federal Energy Regulatory Commission 

(“FERC”). FERC regulates transmission lines in all States except Alaska, Hawaii and most of 

Texas. Because of an oversight, only transmission systems in Texas received the treatment 
8

accorded to FERC-regulated electric cooperatives. Electric cooperatives in Alaska are regulated 

by the Regulatory Commission of Alaska (“RCA”). Regulated utilities in Alaska with an RCA 

approved open access transmission tariff modeled after FERC should have received the same tax 

treatment as their similarly situated counterparts in the other States. The provision clarifies that 

that such utilities in Alaska and Hawaii are treated the same as those in Texas for purposes of the 

exclusion from the 85 percent test.
9

B. Title II − Technical Corrections Related to Partnership Audit Rules

(sec. 1101 of the Bipartisan Budget Act of 2015 and secs. 6221-6241 of the Code)

The provisions correct and clarify provisions relating to the partnership audit rules 

enacted in the Bipartisan Budget Act of 2015, as amended by the PATH Act of 2015, to express 

the intended rule. Section and chapter references are to the Internal Revenue Code of 1986 

unless otherwise indicated.

Scope of adjustments subject to partnership audit rules (sec. 201 of the bill and

secs. 6241(2) and (9) and 6221 of the Code)

The provision clarifies the scope of the partnership audit rules. The provision eliminates 

references to adjustments to partnership income, gain, loss, deduction, or credit, and instead 

refers to partnership-related items, defined as any item or amount with respect to the partnership 

that is relevant in determining the income tax liability of any person, without regard to whether 

the item or amount appears on the partnership’s return and including an item or amount relating 

to any transaction with, basis in, or liability of, the partnership. Thus, these partnership audit 

rules are not narrower than the Tax Equity and Fiscal Responsibility Act of 1982 (“TEFRA”)

partnership audit rules, but rather, are intended to have a scope sufficient to address those items 

described as partnership items, affected items, and computational items in the TEFRA context in 

Treasury Regulations sections 301.6231(a)(3), 301.6231(a)(5), and 301.6231(a)(6), as well as 

any other items meeting the statutory definition of a partnership-related item.

For example, because a partnership-related item includes an item or amount relating to 

any transaction with the partnership, an item or amount relating to a partner’s transaction with a 

partnership other than in his capacity as a member of the partnership (which is considered as 

occurring between the partnership and one who is not a partner under section 707) is a 

partnership-related item. As another example, because a partnership-related item includes an 

item or amount relating to basis in the partnership, an item or amount relating to the 

determination of the adjusted basis of a partner's interest in the partnership or relating to the basis 

of the partnership in partnership property is a partnership-related item. As a further example, 

because a partnership-related item includes an item or amount relating to liability of the 

partnership, an item or amount relating to the determination of partnership liabilities or to the 

effect on a partner of a decrease or increase in a partner’s share of partnership liabilities is a 

partnership-related item. 

The provision clarifies that the partnership audit rules do not apply to taxes imposed, or 

to amounts required to be deducted or withheld, under Code chapters 2 (tax on self-employment 

income), 2A (tax on net investment income), 3 (withholding tax on nonresident alien individuals 

or foreign corporations) or 4 (withholding tax for certain foreign accounts). However, any 

partnership adjustment determined under the income tax is taken into account for purposes of 

determining tax under these chapters of the Code to the extent that the partnership adjustment is 

relevant to the determination. 

For example, if a partnership adjustment results in a change in the amount of income of 

an individual from a partnership, the change is reflected as required under the rules of chapter 2 

in the calculation of the individual's net earnings from self-employment with respect to the 
10

partnership, and the chapter 2 tax may be collected through a process that is outside the 

partnership audit rules. 

In determining the amount of any deficiency, adjustments to partnership-related items are 

made only as provided under the partnership audit rules (Subchapter C of Chapter 63 of the 

Code). Conforming references to partnership-related items are made in provisions of the 

partnership audit rules.

Netting in the determination of imputed underpayments (sec. 202 of the bill and

sec. 6225(a) and (b) of the Code)

When the Secretary makes adjustments to any partnership-related item with respect to the 

reviewed year of a partnership, if the adjustments result in an imputed underpayment, the 

partnership pays an amount equal to the imputed underpayment, and if the adjustments do not 

result in an imputed underpayment, the adjustments are taken into account by the partnership in 

the adjustment year and passed through to the adjustment year partners. The provision clarifies 

this rule by conforming the language referring to partnership-related items and by striking 

erroneous references to separately stated income or loss. 

The provision clarifies the manner of netting items to determine the amount of an 

imputed underpayment of a partnership. The provision clarifies that items of different character 

(capital or ordinary), for example, are not netted together in determining the amount of an 

imputed underpayment. Rather, an imputed underpayment of a partnership with respect to a 

reviewed year is determined by the Secretary by appropriately netting all partnership adjustments 

for that year and by applying the highest rate of tax in effect for the reviewed year under section 

1 or 11. 

In the case of partners’ distributive shares, like items within categories under section 

702(a)(1)-(8) are separately netted. For example, netting within categories of items that are 

netted for purposes of reporting to partners on Schedule K-1 pursuant to section 702 may be 

considered as appropriately netting.

In determining an imputed underpayment, any adjustment that reallocates the distributive 

share of any item from one partner to another is taken into account by disregarding any part of 

the adjustment that results in a decrease in the amount of the imputed underpayment. For 

example, this rule could be implemented by disregarding the decrease in any item of income or 

gain and disregarding the increase in any item of deduction, loss, or credit.

Limitations that would apply at the direct or indirect partner level are treated as applying, 

unless otherwise determined. Under the provision, if an adjustment would decrease the imputed 

underpayment, and could be subject to a limitation or not be allowed against ordinary income if 

the adjustment were taken into account by any person, then the adjustment is not taken into 

account in determining the imputed underpayment of the partnership, except to the extent the 

Secretary otherwise provides.

For example, if an adjustment would increase the amount of a partnership loss allocable 

to partners, but the loss could be subject to the passive loss rule of section 469 in the hands of 

direct and indirect partners of the partnership, then the Secretary does not take into account the 
11

adjustment increasing the loss in determining the amount of the partnership’s imputed 

underpayment, unless the Secretary provides otherwise. For example, the Secretary may provide 

otherwise if the partnership supplies accurate information that all direct and indirect partners of 

the partnership are publicly traded domestic C corporations not subject to the passive loss rule.

It is intended that an imputed underpayment may be modified under procedures described 

in section 6225(c).

Modifications to imputed underpayments (secs. 202, 203, and 206(b) of the bill and

sec. 6225(c) of the Code)

The provision clarifies the modification rules of section 6225(c) to better carry out their 

function as intended by Congress, that is, to determine the amount of tax due as closely as 

possible to the tax due if the partnership and partners had correctly reported and paid while at the 

same time to implement the most efficient and prompt assessment and collection of tax 

attributable to the income of the partnership and partners. 

The provision clarifies the procedures under section 6225(c)(2) that permit a partnership 

to seek modification of an imputed underpayment. These procedures allow reviewed-year 

partners to take adjustments into account so that the partnership’s imputed underpayment can be 

determined by the Secretary without regard to that portion of the adjustments. Like other 

modification procedures in section 6225(c), these procedures take place within the period ending 

270 days after the date the notice of proposed partnership adjustment is mailed, unless the period 

is extended with the consent of the Secretary, as provided in section 6225(c)(7).

Amended returns of partners

The provision clarifies the requirements for reviewed-year partners filing amended 

returns with payment of any tax due. First, the amended return procedure requires the partner to 

file returns for the taxable year of the partner that includes the end of the partnership’s reviewed 

year, as well as for any taxable year with respect to which any tax attribute of the partner is 

affected by reason of any adjustment to a reviewed-year partnership-related item. Second, the 

amended returns are required to take into account all such adjustments that are properly allocable 

to the partner, as well as the effect of the adjustments on any tax attributes. Third, payment of 

any tax due is required to be included with the amended returns. If the requirements are 

satisfied, then the partnership’s imputed underpayment amount is determined without regard to

the portion of the adjustments taken into account by such partners. The amended return 

modification procedure applies with respect to tax paid with amended returns of direct partners 

of the partnership (not with respect to indirect partners). The amended return modification 

procedure does not require the participation of all direct reviewed year partners of the 

partnership. The amended return procedure is not intended to cover adjustments to items on an 

amended return of a partner that do not correspond to adjustments to a reviewed-year 

partnership-related item and the effect of the adjustments on tax attributes. 

Alternative procedure to filing amended returns (pull-in)

The provision sets forth an alternative procedure to filing amended returns. The 

alternative procedure is referred to as the pull-in procedure. Under the pull-in procedure, the 
12

Secretary determines the partnership’s imputed underpayment as reduced by the portion of the 

adjustments to partnership-related items which direct and indirect reviewed-year partners take 

into account and with respect to which those partners pay the tax due, provided the requirements 

of the pull-in procedure are met. 

Under pull-in, reviewed-year partners pay the tax that would be due with amended 

returns, make binding changes to their tax attributes for subsequent years, and provide the 

Secretary with the information necessary to substantiate that the tax was correctly computed and 

paid. However, the partners file no amended returns. Thus, there are generally no corollary 

effects on the partners’ returns beyond the effects on tax attributes, in subsequent years, of the 

adjustments to partnership-related items. 

Pull-in is available generally to direct and indirect reviewed-year partners, in the case of 

tiered partnerships. More specifically, in the case of a partnership, any partner of which is a 

partnership, pull-in applies to any partner in the chain of ownership of the partnerships (treating 

an S corporation and its shareholders in the same manner as a partnership and its partners for this 

purpose). The pull-in procedure does not require the participation of all direct and indirect 

reviewed-year partners of the partnership.

Pull-in requires the participating partner to pay the tax that would be due under the 

amended return filing procedure. The partner is responsible for remitting the payment unless the 

Secretary provides that another person, such as the partnership or a third party, may remit the 

payment on the partner’s behalf. Payment is due within the period ending 270 days after the date 

the notice of proposed partnership adjustment is mailed (unless the period is extended with the 

Secretary’s consent). Pull-in requires that the effects on the partner’s tax attributes of the 

adjustments to partnership-related items properly allocable to the partner are binding with respect 

to all subsequent taxable years of the partner (and binding on any successor to the tax attributes). 

Pull-in requires that the partner provide, in the form and manner specified by the Secretary, such 

information as the Secretary may require to carry out the provision. This requirement can 

include information in the same form as on an amended return, if the Secretary so specifies. The 

information is to be provided within the period ending 270 days after the date the notice of 

proposed partnership adjustment is mailed (unless the period is extended with the Secretary’s 

consent). If all of the requirements are satisfied, the imputed underpayment can be modified. In 

the event that a partner provides the required information, but does not make the required 

payment, for example, the imputed underpayment of the partnership is not modified with respect 

to those adjustments.

For the administrative convenience of taxpayers and the Secretary, partner payments and 

partner information may be collected centrally and remitted to the Secretary under the pull-in 

procedure. This centralization could be administered by the Secretary, by the partnership 

representative, or by a third party. For example, the procedure may permit a third party such as 

an accounting or law firm designated by the partnership representative to collect partner 

information required under the procedure and tally partner payments before remitting this 

information to the Secretary. Such a practice may be useful both to facilitate centralized tracking 

and collection of the information and payments, and to address privacy concerns partners may 

have in sharing information with the partnership representative. Particularly in the case of 

partnerships with numerous partners or direct and indirect partners, such a practice may alleviate 
13

the administrative burdens on the Secretary and taxpayers, consistently with the Congressional 

intent for the centralized partnership audit system to improve the efficiency, promptness, and 

accuracy of collection of partners’ taxes due with respect to partnership-related items.

Assessment authority with respect to payments under the pull-in procedure is provided 

under section 6201. 

Rules applicable both to the amended returns of partners and to the pull-in procedure 

If an adjustment involves reallocation of an item from one partner to another, the 

opportunity to modify the imputed underpayment under amended return procedure (sec. 

6225(c)(2)(A)) or pull-in procedures (sec. 6225(c)(2)(B)) is available only if the requirements of 

one or the other of the amended return or pull-in procedures are satisfied with respect to all 

partners affected by the adjustment involving reallocation. 

For purposes of the amended return and pull-in procedures, tax relating to adjustments to 

a reviewed-year partnership-related item and the effect of the adjustments on tax attributes may 

be determined and assessed without regard to the otherwise applicable statute of limitations of 

sections 6501 and 6511. For example, if a notice of proposed partnership adjustment is mailed to 

a partnership by the Secretary more than three years after a partner filed his or her return for the 

year including the end of the reviewed year, the three-year statute of limitations under section 

6501 or 6511 does not preclude the filing of an amended return, the assessment and payment of 

the partner’s tax due for that year, or the proper crediting or refund of an amount paid by a 

partner, but these results apply only with respect to adjustments to partnership-related items for 

the reviewed year (and the effect of such adjustments on any tax attributes). 

Other modification procedures: adjustment not resulting in an imputed underpayment

The provision states specifically that the modification procedures are available if 

adjustments to partnership-related items do not result in an imputed underpayment. Under 

section 6225(c)(9), information relating to a modification may be offered by the partnership in 

the case of adjustments that do not result in an imputed underpayment, and such adjustments 

may be modified by the Secretary as the Secretary determines appropriate.

Push-out for passthrough partners in tiered structures (sec. 204 of the bill and

sec. 6226 of the Code)

The provision addresses the situation of a partnership or an S corporation that is a direct 

or indirect partner of an audited partnership which has elected to push out adjustments of 

partnership-related items to partners under section 6226. The provision sets forth requirements 

applicable to such partners and the time frame for satisfying these requirements.

If a partner that receives a statement in a push-out is a partnership or S corporation, that 

partner must satisfy two requirements. First, the partner must file with the Secretary a 

partnership adjustment tracking report that includes information required by the Secretary. For 

example, the required information may include identifying the partner’s own partners or 

shareholders, describing and quantifying adjustments necessary to determine partnership-related 
14

items or the equivalent in the hands of those partners or shareholders, or other information 

necessary or appropriate to assessment and collection from tiers of partners in a push-out. 

Second, that partner is required either to pay its imputed underpayment under rules 

similar to section 6225, or to furnish statements to its partners or shareholders under rules similar 

to section 6226(a)(2). That is, the partnership or S corporation must either pay its imputed 

underpayment or push out the adjustments to its partners or shareholders. If such a partnership 

or S corporation chooses to pay its imputed underpayment, the rules of section 6225 apply (other 

than the modifications provided in section 6225(c)(2)(A) (amended returns), 6225(c)(6) (other 

procedures), 6225(c)(7) (270-day period for modifications), and 6225(c)(9) (modification of 

adjustment not resulting in imputed underpayment). The imputed underpayment of the 

partnership or S corporation is determined by appropriately netting all partnership adjustments 

on the statement (taking into account limitations to which adjustments that decrease the imputed 

underpayment could be subject) and applying the highest rate of tax in effect for the reviewed 

year under section 1 or 11, as provided in section 6225. The partnership or S corporation pays its 

imputed underpayment as so determined. However, the partnership or S corporation must push 

out the adjustments to its partners or shareholders (may not pay an imputed underpayment) if it 

elected out of the partnership audit regime for its taxable year that includes the end of the 

reviewed year of the audited partnership.

The due date for the filing of the partnership adjustment tracking report and for the 

payment of the imputed underpayment or furnishing of partner statements is the return due date 

(including extensions) for the taxable year of the audited partnership that includes the date of the 

final determination. That is, the partnership adjustment tracking report must be filed with the 

Secretary, and either the imputed underpayment paid or statements furnished to partners or S 

corporation shareholders, not later than the due date for the taxable year of the audited 

partnership that includes the date of the final determination with respect to the audited 

partnership. In the case of a partner that is not a partnership or an S corporation and that receives 

a statement in a push-out, the partner’s tax is increased for the partner’s taxable year that

includes the date of the statement, as provided in section 6226(b). 

The provision defines an audited partnership for purposes of the push-out treatment of 

passthrough partners in tiered structures under section 6226(b)(4). With respect to a partner that

is a partnership or an S corporation and that receives a statement in a push-out, the audited 

partnership is the partnership in the chain of ownership originally electing the application of 

section 6226.

Failure of partnership to pay imputed underpayment (sec. 205 of the bill and

sec. 6232 of the Code)

Under the provision, if, following an assessment, a partnership fails to pay an imputed 

underpayment within 10 days after the date of notice and demand by the Secretary, the 

applicable interest rate increases, and assessment and collection against adjustment-year partners 

for their proportionate shares may be made. The interest rate under the provision is the 

underpayment rate as modified, that is, the rate is the sum of the Federal short-term rate 

(determined monthly) plus 5 percentage points.
15

The provision applies if, within 10 days of notice and demand for payment, a partnership 

fails to pay an imputed underpayment under section 6225 or any interest or penalties under 

section 6233, or a partner that is a partnership or S corporation in a push-out fails to pay an 

imputed underpayment under section 6226(b)(4)(A)(ii)(I) or any interest or penalties with 

respect to that amount. The S corporation and its shareholders are treated like a partnership and 

its partners for this purpose. The date of the notice and demand for payment initiates a two-year 

period in which the Secretary may assess against the adjustment-year partners.

If a partnership has ceased to exist or terminated (not including a technical termination) 

within the meaning of Code section 6241(7), it is intended that the provision apply with respect 

to the former partners of the partnership. For example, the former partners of the partnership 

may be the partners for the most recent period before the partnership ceased to exist or 

terminated.

A partner is liable for no more than the partner’s proportionate share of the imputed 

underpayment, interest, and penalties, measured as the Secretary determines on the basis of the 

partner’s distributive share of items under section 702. For example, the distributive shares set 

forth in the partnership agreement, or as determined for purposes of Schedule K-1, may serve as 

a measure of a partner’s proportionate share. The Secretary is required to determine partners’

proportionate shares so that the aggregate proportionate shares so determined total 100 percent. 

Thus, no partner is required to pay more than the partner’s proportionate share of the imputed 

underpayment, interest, and penalties. 

Partner payments reduce the partnership’s liability to pay. The partnership’s liability is 

not reduced by partner payments if such payments are made after the date on which the 

partnership pays, however. For example, if a partnership’s liability is $100, and partner 

payments aggregating $60 before July 15 reduce the partnership’s liability to $40, and the 

partnership pays $40 on July 15, a partner payment of $40 on August 1 does not reduce the 

partnership’s liability. The partnership may not receive a credit or refund for any part of the 

partner payment of $40; the partner, however, may.

The Secretary may assess the tax, interest, and penalties on the proportionate share of 

each partner of the partnership as of the close of the adjustment year without regard to the 

deficiency procedures generally applicable to income tax. 

Amendment of statements (Schedule K-1s) to partners (sec. 206(a) of the bill and

sec. 6031(b) of the Code)

The provision clarifies that a partnership that has validly elected out of the partnership 

audit rules under section 6221(b), and therefore is not subject to the partnership audit rules, may 

amend partner statements (Schedule K-1s) after the due date of the partnership return to which 

the statements relate.

Partnership adjustment tracking report and administrative adjustment request not treated 

as amended return (sec. 206(b) of the bill and sec. 6225(c)(2) of the Code)

The provision clarifies that neither the partnership adjustment tracking report required to 

be filed in a push-out, nor an administrative adjustment request submitted under section 6227, is 
16

treated as a return for purposes of modifying an imputed underpayment of a partnership through 

partner amended return filings and payments under section 6225(c)(2)(A). Only a return of a 

partner satisfies the requirement under the partner amended return filing modification procedure.

Final determination with respect to partnership adjustment (sec. 206(c) of the bill and

secs. 6225(d) and 6226(a)(2) of the Code)

The provision clarifies the time of a final determination with respect to a partnership 

adjustment. The final determination is made on the date the court decision becomes final (in the 

case of a court proceeding brought under Code section 6234), the date an administrative 

adjustment request is filed, or in any other case, the date that is 90 days after the date on which 

the notice of final partnership adjustment is mailed. The references in section 6227(b) to when 

an administrative adjustment request is made are conformed to refer to when it is filed. The 

provision does not alter the present-law period of limitation for filing an administrative 

adjustment request in 6227(c), generally providing a three-year limitations period and providing 

that in no event may a partnership file an administrative adjustment request after a notice of an 

administrative proceeding (i.e., the commencement of a partnership audit) with respect to the 

taxable year is mailed under section 6231(c).

The definition of the adjustment year is conformed to refer to the final determination. A 

conforming change clarifies that in a push-out under Code section 6226, statements to partners 

show the partner’s share of any adjustment by reference to the final determination (not by 

reference to the notice of final partnership adjustment if it is not the final determination). 

Assessment authority in a push-out (sec. 206(d) of the bill and sec. 6226 of the Code)

The provision clarifies that, in the case of a partnership that has validly elected under 

Code section 6226 (push-out) in the manner that the Secretary provides, no assessment of tax, 

levy, or proceeding in court for the collection of the imputed underpayment is to be made against 

the audited partnership. 

Treatment of partnership adjustments that result in decrease in tax in push-out (sec. 206(e) 

of the bill and sec. 6226(b) of the Code)

As an alternative to partnership payment of the imputed underpayment in the adjustment 

year, the audited partnership may elect to furnish to the Secretary and to each partner of the 

partnership for the reviewed year a statement of the partner’s share of any adjustments to 

partnership-related items as determined by reference to the final determination with respect to 

the adjustment. In this situation section 6225, requiring the audited partnership to pay the 

imputed underpayment, does not apply. Instead, each reviewed-year partner takes the 

adjustments into account for the taxable year that includes the date of the statement and pays the 

tax as provided in section 6226 (taking into account section 6226(b)(4)).

The provision provides that in taking into account adjustments to determine a partner’s 

tax in a push-out, decreases as well as increases in the partner’s tax are taken into account. The

provision clarifies that the partner’s tax for the taxable year that includes the date of the 

statement is adjusted by the aggregate of the correction amounts. 
17

The correction amount for a particular taxable year of a partner takes into account both 

decreases and increases. That is, the correction amount for the partner’s taxable year that 

includes the end of the reviewed year is the amount by which the income tax would increase or 

decrease if the partner’s share of adjustments were taken into account for that year. Similarly, 

the correction amount for any taxable year of the partner after that year, and before the year that 

includes the date of the statement, is the amount by which the income tax would increase or 

decrease if the partner’s share of adjustments were taken into account for that year. The presentlaw treatment of mathematical or clerical errors applies with respect to correction amounts and 

aggregate correction amounts.

Time limit for notice of proposed partnership adjustment (sec. 206(f) of the bill and

sec. 6231(b) of the Code)

The provision clarifies that a notice of proposed partnership adjustment must be mailed 

within the applicable period of limitations on making adjustments under the partnership audit 

rules (subchapter C of chapter 63 of the Code). The notice of proposed partnership adjustment 

cannot be relied upon to revive an otherwise expired limitations period under section 6235. For 

purposes of determining whether or not a notice of proposed partnership adjustment is timely, 

the applicable limitations period is determined under section 6235, determined without regard to 

section 6235(a)(2) (relating to the period for modification of an imputed underpayment under 

section 6225(c)(7)), and without regard to section 6235(a)(3) (relating to the 330-day period (or 

the period as extended) for making an adjustment after the date of a notice of proposed 

partnership adjustment). 

The provision does not alter the section 6231(b)(2) prohibition against mailing any notice 

of final partnership adjustment earlier than 270 days after the date on which the notice of 

proposed partnership adjustment is mailed (except to the extent the partnership elects to waive 

the prohibition). 

Deposit to suspend interest (sec. 206(g) of the bill and sec. 6233 of the Code)

The provision clarifies that, before the due date for payment of an imputed 

underpayment, a partnership (or, in the case of a partner payment pursuant to an election under 

section 6226, a partner) may make a cash deposit to suspend the running of interest as provided 

under present-law rules in section 6603. The deposit is not treated as a tax payment.

Treatment of special enforcement matters (sec. 206(h) of the bill and sec. 6241(10)

of the Code)

The provision provides regulatory authority similar to that under the TEFRA partnership 

audit rules. It provides that in the case of partnership-related items involving special enforcement 

matters, the Secretary may prescribe guidance under which the partnership audit rules (or any 

portion of the rules) do not apply, and the special enforcement items are subject to special rules, 

including rules related to assessment and collection that are needed for effective and efficient 

enforcement. Special enforcement matters mean: failure to comply with the requirements of 

section 6226(b)(4)(A)(ii) to pay the imputed underpayment if the requirement to furnish 

statements has not been satisfied, termination and jeopardy assessments, criminal investigations, 
18

indirect methods of proof of income, foreign partnerships, and other matters presenting special 

enforcement considerations.

Penalties relating to administrative adjustment requests and partnership adjustment 

tracking reports (sec. 206(i) of the bill and secs. 6651, 6696, 6698, and 6702 of the Code)

The provision clarifies existing penalty provisions to ensure that they address compliance 

with the partnership audit rules. A partnership adjustment tracking report required to be filed 

pursuant to a section 6226 election is treated as a return for purposes of penalties relating to 

failure to file a partnership return, frivolous position submissions, and preparation of tax returns 

for other persons. A failure to comply with section 6226(b)(4)(A)(ii), relating to a push-out, is 

treated as a failure to pay for purposes of the penalty relating to failure to file a tax return or to 

pay tax. An administrative adjustment request under Code section 6227 is treated as a return for 

purposes of penalties relating to frivolous position submissions and the preparation of tax returns 

for other persons.

Statements to partners (adjusted schedules K-1) treated as payee statements (sec. 206(j)

of the bill and sec. 6724 of the Code)

The provision clarifies that for purposes of the penalty for failure to furnish correct payee 

statements and the penalty for failure to file correct information returns, statements required to 

be furnished to partners in a push-out under Code section 6226(a)(2), or statements required to 

be furnished to partners under rules similar to section 6226(a)(2), are treated as payee statements. 

Statements required to be furnished to partners under rules similar to section 6226(a)(2) include 

statements furnished to partners pursuant to an administrative adjustment request under section 

6227. 

Clerical corrections relating to partnership audit rules (sec. 206(k) of the bill)

The provisions make clerical corrections to the partnership audit rules.
19

C. Title III − Other Corrections

Amendments relating to the Bipartisan Budget Act of 2015

Electronic filing of partnership returns.–Present law requires that, under regulations, a 

person may be required to file returns electronically if the person is required to file at least 250 

returns during the calendar year. Regulations provide that for purposes of determining the 250-

return threshold, returns filed within one calendar year by a corporation include any type, 

including information returns (for example, Forms W-2, Forms 1099), income tax returns, 

employment tax returns, and excise tax returns. However, partnerships having more than 100 

partners are required to file returns electronically. For partnerships only, the provision phases in 

reductions in the number of returns and statements during a calendar year that can subject the 

partnership to a regulatory requirement to file returns electronically. Specifically, the provision 

provides that under regulations, partnerships are required to file returns electronically if the 

partnership is required to file at least 200 returns for calendar year 2018, 150 returns for calendar 

year 2019, 100 returns for calendar year 2020, 50 returns for calendar year 2021, and 20 returns 

for calendar years after 2021. The provision is effective as if included with the partnership audit 

provisions of section 1101 of the Bipartisan Budget Act of 2015.

Amendments relating to the Energy Policy Act of 2005

Qualifying small power production facility (Act sec. 1253(b)(1)).–A provision of the 

MACRS depreciation rules, originally enacted in 1986 (Code sec. 168(e)(3)(B)(vi)(II)), refers to 

a provision of the Federal Power Act, as then in effect, defining a “qualifying small power 

production facility” as a facility that is “small” (power production capacity not greater than 80 

megawatts) and not owned by an electric utility (as determined by FERC). The ownership 

limitation was repealed by the Energy Policy Act of 2005 (the “2005 Act”). Since that 2005 

repeal, the determination is made by relying on FERC to determine whether a facility was a 

“qualifying small power production facility” as that term was defined prior to the 2005 Act, a 

determination no longer relevant to FERC (see, e.g., Private Letter Ruling 201539024). The 

provision adds to the Code the language of FERC’s definition of a qualifying small power

production facility (retaining the power production capacity not greater than 80 megawatts)

without the electric utility ownership prohibition. The effect of the provision is that such a 

power production facility is 5-year property for purposes of Code section 168(e)(3)(B)(vi)(II), 

not 15-year property. The provision is effective for property placed in service after the date of 

enactment.
20

D. Title IV − Clerical Corrections and Deadwood

Clerical corrections and deadwood-related provisions

The draft includes clerical corrections and deadwood-related provisions.