24 Federal Register / Vol. 83, No. 1 / Tuesday, January 2, 2018 / Rules and Regulations 

TABLE 1—IRRIGATING WOUND RETRACTOR DEVICE RISKS AND MITIGATION MEASURES—Continued 

Identified risks Mitigation measures 

Infection .................................................................................................... Sterilization validation, Non-clinical performance testing, Shelf life testing, and Labeling. 

FDA has determined that special 

controls, in combination with the 

general controls, address these risks to 

health and provide reasonable assurance 

of safety and effectiveness. For a device 

to fall within this classification, and 

thus avoid automatic classification in 

class III, it would have to comply with 

the special controls named in this final 

order. The necessary special controls 

appear in the regulation codified by this 

order. This device is subject to 

premarket notification requirements 

under section 510(k) of the FD&C Act. 

At the time of classification, irrigating 

wound retractor devices are for 

prescription use only. Prescription 

devices are exempt from the 

requirement for adequate directions for 

use for the layperson under section 

502(f)(1) of the FD&C Act (21 U.S.C. 

352(f)(1)) and 21 CFR 801.5, as long as 

the conditions of 21 CFR 801.109 are 

met (referring to 21 U.S.C. 352(f)(1)). 

III. Analysis of Environmental Impact 

The Agency has determined under 21 

CFR 25.34(b) that this action is of a type 

that does not individually or 

cumulatively have a significant effect on 

the human environment. Therefore, 

neither an environmental assessment 

nor an environmental impact statement 

is required. 

IV. Paperwork Reduction Act of 1995 

This final order establishes special 

controls that refer to previously 

approved collections of information 

found in other FDA regulations. These 

collections of information are subject to 

review by the Office of Management and 

Budget (OMB) under the Paperwork 

Reduction Act of 1995 (44 U.S.C. 3501– 

3520). The collections of information in 

the guidance document ‘‘De Novo 

Classification Process (Evaluation of 

Automatic Class III Designation)’’ have 

been approved under OMB control 

number 0910–0844; the collections of 

information in 21 CFR part 814, 

subparts A through E, regarding 

premarket approval, have been 

approved under OMB control number 

0910–0231; the collections of 

information part 807, subpart E, 

regarding premarket notification 

submissions, have been approved under 

OMB control number 0910–0120, and 

the collections of information in 21 CFR 

part 801, regarding labeling, have been 

approved under OMB control number 

0910–0485. 

List of Subjects in 21 CFR Part 878 

Medical devices. 

Therefore, under the Federal Food, 

Drug, and Cosmetic Act and under 

authority delegated to the Commissioner 

of Food and Drugs, 21 CFR part 878 is 

amended as follows: 

PART 878—GENERAL AND PLASTIC 

SURGERY DEVICES 

■ 1. The authority citation for part 878 

continues to read as follows: 

Authority: 21 U.S.C. 351, 360, 360c, 360e, 

360j, 360l, 371. 

■ 2. Add § 878.4371 to subpart E to read 

as follows: 

§ 878.4371 Irrigating wound retractor 

device. 

(a) Identification. An irrigating wound 

retractor device is a prescription device 

intended to be used by a surgeon to 

retract the surgical incision, to provide 

access to the surgical wound, to protect 

and irrigate the surgical wound, and to 

serve as a conduit for removal of fluid 

from the surgical wound. 

(b) Classification. Class II (special 

controls). The special controls for this 

device are: 

(1) The patient-contacting 

components of the device must be 

demonstrated to be biocompatible and 

evaluated for particulate matter. 

(2) Performance data must 

demonstrate the sterility and 

pyrogenicity of the patient-contacting 

components of the device. 

(3) Performance data must support 

shelf life by demonstrating continued 

functionality and sterility of the device 

over the identified shelf life. 

(4) Non-clinical performance testing 

must demonstrate that the device 

performs as intended under anticipated 

conditions of use. Performance testing 

must: 

(i) Characterize the tear resistance, 

tensile strength, and elongation 

properties of the barrier material; 

(ii) Demonstrate that the liquid barrier 

material is resistant to penetration by 

blood, and is non-flammable; 

(iii) Characterize the forces required 

to deploy the device; 

(iv) Characterize the device’s ranges of 

operation, including flow rates and 

maximum suction pressures; 

(v) Demonstrate the ability of the 

device irrigation apparatus to maintain 

a user defined or preset flow rate to the 

surgical wound; and 

(vi) Demonstrate the ability of the 

device to maintain user defined or 

preset removal rates of fluid from the 

surgical wound. 

(5) The labeling must include or state 

the following information: 

(i) Device size or incision length 

range; 

(ii) Method of sterilization; 

(iii) Flammability classification; 

(iv) Non-pyrogenic; 

(v) Shelf life; and 

(vi) Maximum flow rate and suction 

pressure. 

Dated: December 26, 2017. 

Leslie Kux, 

Associate Commissioner for Policy. 

[FR Doc. 2017–28255 Filed 12–29–17; 8:45 am] 

BILLING CODE 4164–01–P 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 301 

[TD 9829] 

RIN 1545–BN77 

Election Out of the Centralized 

Partnership Audit Regime 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Final regulation. 

SUMMARY: This document contains final 

regulations regarding the 

implementation of certain portions of 

section 1101 of the Bipartisan Budget 

Act of 2015 (BBA), which was enacted 

into law on November 2, 2015. Section 

1101 of the BBA repeals the current 

rules governing partnership audits and 

replaces them with a new centralized 

partnership audit regime that, in 

general, assesses and collects tax at the 

partnership level. This document 

provides final regulations for electing 

out of the centralized partnership audit 

regime. The final regulations affect 

partnerships for taxable years beginning 

after December 31, 2017. 


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Federal Register / Vol. 83, No. 1 / Tuesday, January 2, 2018 / Rules and Regulations 25 

DATES:

Effective date: These regulations are 

effective on January 2, 2018. 

Applicability Date: For dates of 

applicability, see § 301.6221(b)–1(f). 

FOR FURTHER INFORMATION CONTACT: 

Concerning the regulations under 

section 6221(b), Jennifer Black of the 

Office of Associate Chief Counsel 

(Procedure and Administration), (202) 

317–6834 (not a toll-free number). 

SUPPLEMENTARY INFORMATION: 

Background 

This document contains final 

regulations to amend the Procedure and 

Administration Regulations (26 CFR 

part 301) under Subpart—Tax 

Treatment of Partnership Items to 

implement the rules for electing out of 

the centralized partnership audit regime 

enacted by section 1101 of the BBA, 

Public Law 114–74. Section 

301.6221(b)–1 provides the rules 

regarding the ability of a partnership to 

elect out of the centralized partnership 

audit regime, including prescribing the 

time, form, and manner for making the 

election. 

On June 14, 2017, the Treasury 

Department and the IRS published in 

the Federal Register (82 FR 27334) a 

notice of proposed rulemaking (REG– 

136118–15) proposing amendments to 

part 301 of title 26 of the Code of 

Federal Regulations (June 14 NPRM). 

The June 14 NPRM proposed rules 

under a number of provisions of the 

centralized partnership audit regime, 

including section 6221(b), regarding the 

election out of the regime. A public 

hearing regarding the proposed 

regulations was held on September 18, 

2017. The IRS also received written 

public comments in response to the 

proposed regulations. After careful 

consideration of all written public 

comments and statements made during 

the public hearing, the portions of the 

proposed regulations relating to section 

6221(b) are adopted as amended by this 

Treasury decision. The amendments to 

the proposed regulations are discussed 

in the next section. 

Summary of Comments and 

Explanation of Revisions 

In response to the June 14 NPRM, the 

IRS received 32 written comments, and 

five statements were provided at the 

public hearing. Of the 32 written 

comments, 16 addressed the proposed 

regulations under section 6221(b). All 

comments (both written and provided 

orally at the public hearing) were 

considered and written comments are 

available for public inspection at 

www.regulations.gov or upon request. 

This preamble addresses only the 

comments that addressed the proposed 

regulations under section 6221(b), 

which are the proposed regulations from 

the June 14 NPRM being finalized in 

this Treasury Decision. Comments, or 

any portion of a comment, which relate 

to other aspects of the proposed 

regulations in the June 14 NPRM will be 

addressed when final regulations 

regarding those provisions are 

published. 

1. Election Out of the Centralized 

Partnership Audit Regime 

The comments received with respect 

to proposed § 301.6221(b)–1 (regarding 

the election out of the centralized 

partnership audit regime) cover three 

general areas: (1) Determining the 

number of partners of the partnership 

for purposes of determining whether the 

partnership has 100 or fewer partners 

under section 6221(b); (2) determining 

what partners constitute eligible 

partners for purposes of determining 

whether the partnership is an eligible 

partnership under section 6221(b); and 

(3) the mechanics of making the election 

under section 6221(b). 

A. Determining Whether the Partnership 

is Eligible To Elect Out of the 

Centralized Partnership Audit Regime 

Proposed § 301.6221(b)–1(b)(1) 

provides that a partnership is eligible to 

elect out of the centralized partnership 

audit regime if the partnership has 100 

or fewer partners for the taxable year, 

and all of the partners are eligible 

partners. Proposed § 301.6221(b)– 

1(b)(1)(i) provides that a partnership has 

100 or fewer partners for the taxable 

year if it is required to furnish 100 or 

fewer statements under section 6031(b). 

i. Determining the Number of 

Statements Required To Be Furnished 

Several comments suggested that 

statements furnished to certain types of 

partners should not be taken into 

account for purposes of determining 

whether the partnership is required to 

furnish 100 or fewer statements under 

section 6031(b) (the 100-or-fewer 

threshold). For example, one comment 

recommended that statements furnished 

to pass-through entities and disregarded 

entities should not count toward the 

100-or-fewer threshold, and another 

comment recommended that spouses 

should count as a single partner for this 

purpose. 

Section 6031(b) generally requires a 

partnership to furnish a statement to 

each person that is a partner in the 

partnership during the partnership 

taxable year regarding that partner’s 

interest in the partnership for such year. 

If a pass-through entity or disregarded 

entity is a partner in the partnership, the 

partnership is required to furnish a 

statement under section 6031(b) to that 

pass-through entity or disregarded 

entity. See § 1.6031(b)–1T(a)(1) 

(statements required to be furnished to 

every person who was a partner (within 

the meaning of section 7701(a)(2)) at any 

time during the taxable year). 

Additionally, if two individuals are 

partners in a partnership, the 

partnership is required to furnish a 

statement under section 6031(b) to each 

of those individuals, regardless of 

whether they are married to one 

another. Id. Even though a pass-through 

entity or a disregarded entity is not an 

eligible partner (and a partnership with 

such partners would not be eligible to 

make an election under section 6221(b) 

regardless of the number of its partners), 

because the statute expressly provides 

that the 100-or-fewer threshold turns on 

the number of statements required to be 

furnished under section 6031(b), and 

section 6031(b) requires that the 

partnership furnish statements to all 

partners in the partnership during such 

taxable year regardless of whether the 

partner is a pass-through entity, a 

disregarded entity, or an individual who 

is married to another partner, these 

comments suggesting to the contrary 

were not adopted. 

One comment suggested that the IRS 

should establish procedures to quickly 

address uncertainties regarding whether 

a statement was required to be issued 

under section 6031(b) for purposes of 

making an election under section 

6221(b). The comment suggested that 

this could be accomplished through the 

private letter ruling process. Eligible 

partnerships can file an election out of 

the centralized partnership audit regime 

for taxable years beginning on or after 

January 1, 2018. Until the first 

partnership returns for taxable years 

subject to the new regime are filed and 

any elections out of the new regime are 

reviewed, it is difficult to determine 

whether a pre-filing procedure for 

providing legal determinations 

regarding section 6031(b) for purposes 

of making the election under section 

6221(b) would be helpful or 

appropriate. Additionally, there is longstanding guidance regarding whether a 

partnership is required to furnish a 

statement under section 6031(b) to a 

particular person. Id. Therefore, because 

there is sufficient existing guidance 

regarding whether statements are 

required to be furnished under section 

6031(b) and because the centralized 

partnership audit regime does not alter 

that existing guidance, the Treasury 


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26 Federal Register / Vol. 83, No. 1 / Tuesday, January 2, 2018 / Rules and Regulations 

Department and the IRS have chosen 

not to adopt the suggestion to establish 

a pre-filing procedure specific to section 

6221(b) in the final regulations. The IRS 

may reconsider whether a pre-filing 

procedure would be helpful after 

gaining experience with the election out 

procedures under section 6221(b). If it 

becomes apparent that a pre-filing 

procedure might prove useful in the 

context of section 6221(b), the Treasury 

Department and the IRS will consider at 

that time whether to establish such a 

procedure in other guidance, forms, or 

instructions. Additionally, nothing in 

these regulations prohibits a partnership 

from utilizing existing procedures for 

requesting private letter rulings or other 

guidance from the IRS concerning 

section 6031(b). 

Two comments were received with 

respect to Example 2 under proposed 

§ 301.6221(b)–1(b)(2)(iii). One comment 

suggested removing certain assumptions 

set forth in the example because those 

assumptions were not relevant to the 

conclusion reached in the example. 

Specifically, the comment suggested 

removing the following assumed facts— 

(1) that Spouse 1 and Spouse 2 have 

lived in a community property state at 

all times since they were married; and 

(2) that Spouse 1 acquired the 

partnership interest while married to 

Spouse 2. The comment suggested 

replacing those assumed facts with a 

statement that Spouse 2 only has a 

community property interest in the 

partnership. A second comment 

recommended that the regulations 

expressly state that one spouse’s 

community property interest is not 

taken into account for purposes of 

determining the number of statements 

the partnership is required to furnish 

under section 6031(b). 

The intent of Example 2 under 

proposed § 301.6221(b)–1(b)(2)(iii) was 

to illustrate that whether a partnership 

is required to furnish a statement for 

purposes of section 6221(b) is 

determined by looking only to section 

6031(b). The example was not intended 

to illustrate any principles of the 

various states’ community property 

laws. For these reasons, the two facts 

identified by the first comment were 

removed and replaced with a statement 

that, as a matter of state law, Spouse 2 

has a community property interest in 

Spouse 1’s partnership interest. 

The second comment suggested that 

the regulations under section 6221(b) 

specifically address community 

property interests. The determination of 

whether a partnership is required to 

furnish a statement is governed by 

section 6031(b) and the regulations 

thereunder. Creating a specific rule 

potentially at odds with the existing 

rules under section 6031(b) in these 

regulations could result in confusion 

regarding the proper operation of 

existing section 6031(b) rules and is not 

necessary for implementation of section 

6221(b). Accordingly, the second 

comment suggesting the regulations 

expressly state that one spouse’s 

community property interest is not 

taken into account for purposes of 

determining the number of statements 

the partnership is required to furnish 

under section 6031(b) was not adopted. 

ii. Constructive or de Facto Partnerships 

Several comments were received 

regarding the statement in the preamble 

of the June 14 NPRM that noted the IRS’ 

intention to carefully scrutinize whether 

two or more partnerships that have 

elected out under section 6221(b) 

should be recast under existing judicial 

doctrines and general federal tax 

principles as having formed one or more 

constructive or de facto partnerships for 

federal income tax purposes. The 

preamble also listed several factors the 

IRS would consider when examining 

such arrangements and noted that, if 

two or more partnerships were recast 

under those doctrines and principles, 

the constructive or de facto partnership 

would be subject to the centralized 

partnership audit regime because it 

would not have made a timely election 

under section 6221(b). Several 

comments suggested rules to address 

those statements in the preamble, 

including suggesting that the final 

regulations should provide: (1) Clear 

standards and safe harbors for when the 

IRS will determine if a constructive or 

de facto partnership exists and the 

effects of determining that two or more 

partnerships are constructively a single 

partnership; (2) a rule that any 

constructive or de facto partnership 

should be able to appeal that 

determination, including to the United 

States Tax Court; and (3) a reasonable 

amount of time for a constructive or de 

facto partnership to make an election 

under section 6221(b). 

The statements in the preamble of the 

June 14 NPRM referencing the IRS’s 

intention to carefully examine whether 

two or more partnerships should be 

recast or be treated as having formed 

one or more constructive or de facto 

partnerships for federal income tax 

purposes reference existing judicial 

doctrines and general federal tax 

principles existing outside the 

centralized partnership audit regime. 

These existing judicial doctrines and 

bodies of law under the Internal 

Revenue Code (Code) govern whether a 

partnership is in existence, which is not 

an issue specific to (or altered by) the 

centralized partnership audit regime. 

However, if the IRS were to invoke these 

existing judicial doctrines and bodies of 

law and recast two partnerships as one 

or determine a partnership existed 

where no return was filed, there would 

likely be consequences under the 

centralized partnership audit regime as 

outlined in the preamble to the June 14 

NPRM. For that reason, the statements 

in the preamble to the June 14 NPRM 

were meant to alert taxpayers to these 

existing judicial doctrines and bodies of 

law and to the fact that they might be 

applicable. Nothing in the June 14 

NPRM or in this Treasury Decision 

alters these existing judicial doctrines 

and bodies of law governing whether a 

partnership is in existence. Accordingly, 

the final regulations do not adopt the 

comments requesting rules under the 

existing judicial doctrines and bodies of 

law governing whether a partnership is 

in existence. 

Any application by the IRS of those 

existing judicial doctrines and bodies of 

law to two or more partnerships would 

require the IRS to follow all applicable 

due process requirements, including 

those under the centralized partnership 

audit regime. A taxpayer would have 

any applicable administrative review in 

accordance with IRS procedures and 

judicial review as provided by existing 

provisions of law. 

With regard to the comment 

requesting a reasonable amount of time 

for a constructive or de facto 

partnership to make an election under 

section 6221(b), the time to make an 

election under section 6221(b) is 

specifically prescribed by statute. 

Section 6221(b)(1)(D)(i) expressly 

provides that an election under section 

6221(b) is made on a timely filed return 

for the taxable year. 

Finally, the United States Tax Court is 

a court of limited jurisdiction. See 

section 7442. The Treasury Department 

and the IRS do not have authority to 

confer jurisdiction on the United States 

Tax Court. As the IRS gains experience 

with the centralized partnership audit 

regime, the IRS may consider issuing 

sub-regulatory guidance covering 

elections under section 6221(b) in the 

context of constructive and de facto 

partnerships. The comments regarding 

constructive and de facto partnerships, 

however, were not adopted in these 

final regulations. 

B. Eligible Partners 

Under section 6221(b)(1)(C), one of 

the criteria for a partnership to make an 

election under section 6221(b) is that 

each of the partners of the partnership 

is an individual, C corporation, foreign 


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Federal Register / Vol. 83, No. 1 / Tuesday, January 2, 2018 / Rules and Regulations 27 

entity that would be treated as a C 

corporation if it were a domestic entity, 

S corporation, or estate of a deceased 

partner. Proposed § 301.6221(b)–1(b)(3) 

describes these partners as ‘‘eligible 

partners’’. Proposed § 301.6221(b)– 

1(b)(3)(ii) provides that some partners 

are not eligible partners, such as 

partnerships, trusts, disregarded 

entities, nominees or other similar 

persons that hold an interest on behalf 

of another person, and estates other than 

the estate of a deceased partner. In the 

case of an eligible partner that is an S 

corporation (S corporation partner), the 

statements required to be furnished by 

the S corporation partner under section 

6037(b) for its taxable year ending with 

or within the partnership’s taxable year 

are treated as statements furnished by 

the partnership for purposes of 

determining whether the partnership is 

required to furnish 100 or fewer 

statements. Section 6221(b)(2)(A)(ii). 

The statement furnished to the S 

corporation partner by the partnership 

also counts towards the 100-or-fewer 

threshold. In addition, the partnership 

must disclose the names and taxpayer 

identification numbers (TIN) for each 

person with respect to whom the S 

corporation partner was required to 

furnish a statement under section 

6037(b). Under section 6221(b)(2)(C), 

the Secretary is authorized by regulation 

or other guidance to prescribe rules 

similar to the rules for S corporation 

partners with respect to other types of 

persons not specifically described as 

eligible partners under section 

6221(b)(1)(C). 

The preamble to the June 14 NPRM 

explains that the Treasury Department 

and the IRS considered but did not 

adopt comments in response to Notice 

2016–23, 2016–13 I.R.B. 490 (March 28, 

2016) that suggested that the Treasury 

Department and the IRS exercise 

authority under section 6221(b)(2)(C) to 

expand the types of persons that are 

eligible partners for purposes of the 

election out rules under section 6221(b). 

The June 14 NPRM explains that 

broadening the scope of the election out 

provisions to include additional types of 

partners or partnership structures would 

increase the administrative burden on 

the IRS because those structures and 

partners would need to be audited 

under the deficiency procedures. The 

preamble to the June 14 NPRM 

requested comments on any potential 

expansion of the election out rules, 

noting that comments are particularly 

helpful if they address the additional 

burdens that expansion of the rules 

would impose on the IRS, in addition to 

the decreased burden on taxpayers 

resulting from such an expansion. 

In response to the June 14 NPRM, the 

Treasury Department and the IRS 

received many comments similar to the 

comments received in response to 

Notice 2016–23 requesting that the 

Treasury Department and the IRS 

exercise the discretionary authority 

provided in section 6221(b)(2)(C) to 

expand the definition of eligible partner. 

Comments suggested that partnerships, 

disregarded entities, trusts (including 

tax-exempt trusts, revocable trusts, 

charitable remainder trusts, grantor 

trusts, and nongrantor trusts), 

individual retirement accounts, 

nominees, qualified pension plans, 

profit-sharing plans, and stock bonus 

plans should be considered eligible 

partners for purposes of making an 

election under section 6221(b). 

Comments specifically suggested that 

because certain types of entities, such as 

trusts, are similarly situated to certain 

eligible partners, such as S corporations 

because those entities are audited and 

report items to their owners similarly, 

they should be included within the 

definition of eligible partner, and that 

excluding them could lead to treating 

similarly situated taxpayers differently. 

For example, one comment noted that a 

tax-exempt organization organized as a 

C corporation is an eligible partner 

while a tax-exempt organization 

organized as a trust is not an eligible 

partner, even though both organizations 

are taxed the same way. 

One comment suggested that all tiered 

partnerships should be eligible to make 

an election under section 6221(b) under 

rules similar to the rules that apply to 

S corporation partners, which would 

require counting the number of 

statements required to be furnished by 

each pass-through partner toward the 

100-or-fewer threshold under proposed 

§ 301.6221(b)–1(b)(2). Another comment 

recommended that the IRS develop an 

administrable election out for tiered 

partnerships. The comments suggested 

that such rules could allow for tiered 

partnerships to be collapsed down to 

their ultimate beneficial owners and 

permit that collapsed structure to make 

an election out, provided there was a 

‘‘manageable’’ number of ultimate 

beneficial owners and the beneficial 

owners were all eligible partners. 

In addition, multiple comments 

suggested that the authority granted in 

section 6221(b)(2)(C) signified a 

congressional expectation that the 

Treasury Department and the IRS would 

expand the list of eligible partners 

under section 6221(b)(1)(C). Multiple 

comments also suggested that the 

General Explanations of Tax Legislation 

Enacted in 2015 prepared by the Joint 

Committee on Taxation supported an 

expansion of the section 6221(b)(1)(C) 

list. See Joint Comm. on Taxation, JCS– 

1–16, General Explanation of Tax 

Legislation Enacted in 2015, 59–60 

(2016). Other comments observed that 

the differences between the election out 

rules under section 6221(b) and the 

small partnership exception under the 

Tax Equity and Fiscal Responsibility 

Act of 1982, Public Law 97–248 

(TEFRA)—the increase from 10 to 100 

partners and the inclusion of S 

corporation partners—reflected an 

awareness that the IRS would face 

additional administrative burdens as a 

result of the election out rules. 

Comments suggested that in some 

situations there would be minimal or no 

additional burdens imposed on the IRS 

resulting from an expansion of the 

definition of eligible partner. For 

example, comments suggested that, 

because there is only one additional 

layer of ownership beyond an entity that 

is disregarded as an entity separate from 

its owner for Federal tax purposes, 

adding those types of entities to the 

definition of eligible partner would not 

increase audit complexity or 

administrative burden for the IRS. 

Some comments suggested that 

maintaining the current definition of 

eligible partner in proposed 

§ 301.6221(b)–1(b)(3) would actually 

lead to more administrative burden for 

the IRS. For example, one comment 

suggested that because some tiered 

partnerships are ultimately owned by 

members of the same affiliated group, it 

would be more burdensome to conduct 

separate examinations (one for the 

partnership under the centralized 

partnership audit regime and one for the 

consolidated group under the deficiency 

procedures), rather than examining all 

entities as part of the same proceeding. 

Another comment observed that in some 

cases, certain partnership structures that 

are relatively complex and therefore 

difficult to audit would be able to elect 

out, while other more simple structures, 

which are potentially less burdensome 

to audit, could not elect out. One 

comment suggested that by not 

expanding the types of entities that are 

eligible partners more partnerships will 

be subject to the centralized partnership 

audit regime, and the IRS and taxpayers 

will face additional burdens because 

they have to apply the new audit rules, 

rather than applying longstanding rules 

familiar to both the IRS and to 

taxpayers. 

Other comments noted the 

consequences to partnerships and 

partnership interests of not expanding 

the definition of eligible partner to 


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28 Federal Register / Vol. 83, No. 1 / Tuesday, January 2, 2018 / Rules and Regulations 

include disregarded entities or trusts. 

For example, one comment suggested 

that not expanding the types of entities 

that are eligible partners would result in 

taxpayers transferring partnership 

interests from disregarded entities to 

eligible partners, leading to unnecessary 

filings and paperwork with limited 

effect on the ultimate taxpayers’ 

liabilities. Another comment suggested 

that not expanding the types of entities 

that are eligible partners would cause a 

reduction in value of limited 

partnership interests because of the 

increased risks and burdens associated 

with an audit under the centralized 

partnership audit regime. Another 

comment noted that the centralized 

partnership audit regime shifts certain 

administrative functions from the IRS to 

taxpayers, functions that were typically 

performed by the IRS under TEFRA. 

The Treasury Department and the IRS 

have carefully considered all of the 

comments suggesting an expansion of 

the definition of eligible partner, but 

have decided not to adopt these 

comments at this time. In making this 

determination, the Treasury Department 

and the IRS considered the burdens of 

the centralized partnership audit regime 

on taxpayers and have concluded that 

the interests of efficient tax 

administration outweigh those potential 

burdens. Accordingly, the final 

regulations do not expand the definition 

of eligible partner to include entities 

other than those entities expressly 

provided in section 6221(b)(1)(C). After 

gaining experience with the centralized 

partnership audit regime, the Treasury 

Department and the IRS will be in a 

better position to reconsider any 

expansion of partnerships eligible to 

elect out of the regime. 

Expanding the current definition of 

eligible partner would result in more 

partnerships electing out of the 

centralized partnership audit regime. In 

turn, this would result in more audits 

under the deficiency procedures for 

taxpayers owning interests in 

partnerships. When a partnership makes 

a valid election out of the centralized 

partnership audit regime under section 

6221(b), the IRS must follow the 

deficiency procedures to audit, assess, 

and collect tax from the ultimate owners 

of that partnership. Under the 

partnership audit procedures enacted as 

part of TEFRA, the IRS conducted a 

unified examination of the partnership’s 

items at the partnership level, but was 

still required to separately assess and 

collect tax from the ultimate owners of 

the partnership (sometimes through 

deficiency procedures). 

The centralized partnership audit 

regime is designed to improve upon 

both the TEFRA rules and the 

deficiency procedures by providing for 

a centralized audit proceeding with 

respect to the partnership and 

mandating centralized assessment and 

collection of tax, penalties, and interest 

from the partnership. It follows then 

that rules designed to limit the number 

of partnerships that can elect out of the 

new regime is consistent with this 

objective. 

Further, for each additional type of 

partner that is added to the list of 

eligible partners, the IRS will be 

required to follow deficiency 

procedures with respect to the indirect 

partners of that partner to assess and 

collect tax resulting from a partnership 

audit that could otherwise be assessed 

and collected against a single 

partnership under the centralized 

partnership audit regime. As noted in 

the preamble to the June 14 NPRM, the 

number of partnerships has grown 

substantially in recent years and is 

likely to continue to grow, 

compounding the audit and collection 

inefficiencies extant outside of the new 

regime for the IRS with each expansion 

of the eligible partner list. It would 

undermine the benefits of the new 

regime to expand the group of 

partnerships that are eligible to elect out 

of the new regime. Moreover, it would 

be unwise to do so at a time before the 

first returns for taxable years subject to 

the new regime have been filed. 

There may be some situations where 

expanding eligible partners would not 

add significantly more complexity to an 

examination, even under the deficiency 

procedures. However, while this may 

occur in some instances, the rules under 

section 6221(b) are designed to be of 

general applicability to all partnerships, 

regardless of size and composition of 

partners. Section 6221(b)(1) sets the 

parameters for making an election out of 

the centralized partnership audit 

regime, and partnerships that meet these 

requirements are eligible to make an 

election under section 6221(b) 

regardless of how complex or simple 

their partnership structure is. While 

certain types of partnerships that elect 

out may present less audit burden than 

others, as the total number of partners 

increases, so too does the number and 

the complexity of deficiency 

proceedings. Therefore, any potential 

simplification of an audit for one 

particular partnership that might result 

from the expansion of the election out 

rules must be appropriately balanced 

against the increasing audit burden on 

the IRS if the total number of 

partnerships that can elect out is 

increased. 

The Treasury Department and the IRS 

acknowledge that the new rules are a 

significant change in the way 

partnerships have been traditionally 

audited, particularly in the imposition 

of an imputed underpayment at the 

partnership level. Comments have 

raised concerns that the imputed 

underpayment may not accurately 

reflect the tax liability that would have 

been owed had the partnership and the 

partners reported correctly in the 

reviewed year taking the partners’ 

specific facts and circumstances into 

account. However, partnerships and 

partners have the means to mitigate 

those concerns by utilizing the 

modification procedures under section 

6225 or making the election under 

section 6226 (the alternative to payment 

of the imputed underpayment). 

As the Treasury Department and the 

IRS gain experience with the centralized 

partnership audit regime, the definition 

of eligible partner may be revisited. 

Section 6221(b)(2)(C) allows the 

Treasury Department and the IRS to 

expand the types of eligible partners 

through ‘‘other guidance,’’ which 

includes sub-regulatory guidance that 

can be more easily tailored and adapted 

as the Treasury Department and the IRS 

gain experience with the new regime. 

Until that time, however, the list of 

eligible partners will remain the list 

specifically set forth by Congress in 

section 6221(b)(1)(C). 

In addition to the comments about 

expanding the definition of eligible 

partner, one comment recommended 

clarifying the meaning and application 

of the phrase ‘‘a nominee or other 

similar person that holds an interest on 

behalf of another person’’ under 

proposed § 301.6221(b)–1(b)(3)(ii)(E). 

The comment stated that the meaning of 

the quoted language was unclear. The 

intent of this provision was not to create 

a new concept that does not currently 

exist in the Code and regulations. 

Instead, the intent of the provision was 

to include in the list of ineligible 

partners situations where the partner 

holds an interest on behalf of another 

person. To remove the ambiguity, the 

quoted language was clarified to remove 

the word ‘‘nominee’’ as a separate 

clause and provides instead that a 

partner is not an eligible partner if that 

partner holds an interest in the 

partnership on behalf of another person. 

C. Making the Election Under Section 

6221(b) 

Proposed § 301.6221(b)–1(c) provides 

that an election out of the centralized 

partnership audit regime must be made 

on an eligible partnership’s timely filed 

return, including extensions, for the 


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Federal Register / Vol. 83, No. 1 / Tuesday, January 2, 2018 / Rules and Regulations 29 

taxable year to which the election 

applies, and, once made cannot be 

revoked without the consent of the IRS. 

Additionally, under proposed 

§ 301.6221(b)–1(c)(2), the election must 

include each partner’s name, correct 

U.S. TIN, and Federal tax classification. 

If the election is being made by a 

partnership that has an S corporation as 

a partner, proposed § 301.6221(b)– 

1(c)(2) provides that the election must 

also include each S corporation 

shareholder’s name, correct U.S. TIN, 

and Federal tax classification. Proposed 

§ 301.6221(b)–1(c)(2) also provides that 

the election must include an affirmative 

statement that the partner is an eligible 

partner and any other information 

required by the IRS in forms, 

instructions, or other guidance. Under 

proposed § 301.6221(b)–1(c)(3), if a 

partnership makes an election under 

section 6221(b), the partnership must 

notify its partners of the election within 

30 days of making the election. Under 

proposed § 301.6221(b)–1(e)(2), if the 

IRS determines that a purported election 

by a partnership is invalid, the IRS will 

notify the partnership in writing, and 

the provisions of the centralized 

partnership audit regime will apply to 

the partnership. 

One comment suggested that the 

regulations clarify whether a ‘‘timely 

filed return’’ under proposed 

§ 301.6221(b)–1(c)(1) is limited to the 

partnership’s original return or whether 

it also includes any amended returns 

filed before the due date of the original 

return. The definition of whether a 

return is a timely filed return is covered 

by other provisions of the Code, and the 

proposed regulations do not modify the 

longstanding interpretation of those 

provisions. Under that longstanding 

interpretation, a return is timely filed if 

it is filed prior to the due date of the 

return (taking into account any 

applicable extensions), regardless of 

whether it is the original return filed by 

the partnership or a return filed 

subsequent to the original return but 

before the extended due date of the 

return. See Haggar Co. v. Helvering, 308 

U.S. 389 (1940). Therefore, the comment 

requesting that the regulations clarify 

the phrase ‘‘timely filed return’’ in 

proposed § 301.6221(b)–1(c)(1) was not 

adopted. 

Two comments were received 

regarding the rule under proposed 

§ 301.6221(b)–1(c)(1) that requires 

consent of the IRS to revoke an election 

previously made by the partnership. 

One comment suggested that 

partnerships should have the ability to 

revoke the election under section 

6221(b) without the consent of the IRS 

and suggested that such a rule could 

result in more partnerships revoking 

elections and therefore becoming 

subject to the centralized partnership 

audit regime. Section 6221(b) is silent as 

to whether a partnership may revoke its 

election. 

The June 14 NPRM allows a 

partnership to request revocation of its 

election under section 6221(b) with 

consent of the IRS. IRS consent is 

necessary for this type of election 

revocation because of the potential for 

detrimental effects on tax 

administration. By making an election 

under section 6221(b), the partnership is 

representing to the IRS that the 

partnership seeks to elect out of the 

centralized partnership audit regime. If 

a partnership is able to unilaterally 

revoke the election, the partnership is 

changing that representation without 

the IRS’s knowledge which, under 

certain circumstances, could be 

detrimental to tax administration. For 

example, a partnership could make an 

election under section 6221(b) and 

subsequently revoke the election at a 

time when the period of limitations on 

making partnership adjustments under 

section 6235 is close to expiring, or 

would have already expired, even 

though the individual partners’ periods 

of limitations on assessment might still 

be open. If unilateral revocations were 

permissible, the IRS would have to 

obtain protective statute extensions 

creating unnecessary burden on both 

partners and the IRS. Because the 

partnership’s unilateral revocation of an 

election under section 6221(b) could be 

detrimental to tax administration, it is 

necessary to require IRS consent prior to 

any revocation. While allowing 

revocation without consent could 

potentially result in more partnerships 

subject to the centralized partnership 

audit regime, there is no reason to 

believe that requiring consent 

significantly alters the number of 

potential revocations, except in 

situations where the revocation was 

clearly detrimental to tax 

administration. Accordingly, the 

comment suggesting that the 

partnership can revoke the election 

without the consent of the IRS was not 

adopted. 

Another comment recommended that 

the IRS provide rules on how a 

partnership requests the consent of the 

IRS to revoke an election and the 

standards the IRS will use to grant or 

deny such requests. The Treasury 

Department and the IRS have 

determined that these procedures are 

more appropriately addressed in nonregulatory guidance. This will enable 

the IRS to more quickly adjust the 

process, respond to feedback, and fix 

any potential problems as it gains more 

experience with elections under section 

6221(b). Accordingly, these final 

regulations do not adopt this comment. 

Section 6221(b)(2)(B) provides that 

the IRS may provide an alternative form 

of identification for foreign partners. 

The June 14 NPRM does not provide for 

a form of alternative identification for 

foreign partners, but instead requires 

that all partners of an eligible 

partnership have a U.S. TIN. The 

preamble to the June 14 NPRM explains 

that partners in a U.S partnership, 

including foreign partners, are required 

to have a U.S TIN, so an alternative form 

of identification may be unnecessary. 

However, the June 14 NPRM requested 

comments regarding situations in which 

a foreign partner subject to the 

centralized partnership audit regime 

may not otherwise be required to have 

a U.S. TIN, other than for the election 

under section 6221(b), and requested 

recommendations for alternative 

identification procedures that could be 

used in such cases. 

Two comments made suggestions 

regarding a possible alternative method 

for identifying foreign partners when 

the partnership discloses partner 

information to the IRS as part of an 

election under section 6221(b). One 

comment recommended that ‘‘in the 

case of foreign partners who are 

individuals, the final Regulations 

provide that the partnership can submit 

a completed Form W–8 in lieu of the 

foreign partner’s TIN.’’ Another 

comment suggested that all foreign 

partners should be required to have 

TINs for a partnership to be eligible to 

make an election under section 6221(b). 

Consistent with the second comment, 

the final regulations retain the approach 

of the proposed regulations and require 

a partnership to provide a correct U.S. 

TIN for all partners (foreign and 

domestic) as part of a valid election 

under section 6221(b). Requiring a U.S. 

TIN for all partners of a partnership 

treats all partners the same, regardless of 

whether they are foreign or domestic, 

and ensures that the partners of the 

partnership can be easily identified. 

However, the Treasury Department and 

the IRS intend to continue to study this 

issue and may, in the future, provide for 

alternative identification for foreign 

partners in forms, instructions, and 

other guidance. To account for any 

future forms of alternative identification 

for foreign partners, § 301.6221(b)– 

1(c)(2) provides that a partnership must 

disclose the name and U.S. TIN, or 

alternative form of identification 

required by forms, instructions, or other 

guidance, for each partner of the 


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30 Federal Register / Vol. 83, No. 1 / Tuesday, January 2, 2018 / Rules and Regulations 

partnership or each shareholder of an S 

corporation partner. 

Another comment stated that the 

language in proposed § 301.6221(b)– 

1(c)(2), which requires a partnership to 

provide information regarding ‘‘each 

shareholder of the S corporation’’, was 

not clear because it did not specify 

whether the partnership was required to 

provide information regarding S 

corporation shareholders as of a specific 

date or whether information was 

required of any person who was a 

shareholder at any point during the S 

corporation’s taxable year. The IRS and 

Treasury Department agree that the 

language in proposed § 301.6221(b)– 

1(c)(2) should be clarified. Section 

6221(b)(2)(A)(i) provides that the S 

corporation shareholders the 

partnership must identify are those 

shareholders with respect to whom the 

S corporation partner is required to 

furnish statements under section 

6037(b) for the taxable year of the S 

corporation ending with or within the 

partnership taxable year for which the 

election is being made. Accordingly, the 

final regulations in § 301.6221(b)–1(c)(2) 

provide that, as part of a valid election, 

a partnership must disclose the required 

information about each person who was 

a shareholder in the S corporation 

partner at any time during the taxable 

year of the S corporation ending with or 

within the partnership’s taxable year. 

Regarding the requirement that a 

partnership making an election under 

section 6221(b) include an affirmative 

statement that each partner is an eligible 

partner, a comment was received 

recommending that the affirmative 

statement should appear on the bottom 

of the form for making the election or 

be a return attachment that could be 

signed by anyone eligible to sign the 

partnership return. This comment and 

recommendation concerns forms and 

instructions that will be prescribed by 

the IRS, and therefore the comment is 

outside the scope of these regulations. 

However, the IRS will consider this 

comment when creating the forms and 

instructions necessary to implement the 

election out of the centralized 

partnership audit regime. 

Two comments addressed the 

requirement that the partnership notify 

its partners of any election made under 

section 6221(b) within 30 days of 

making the election. Proposed 

§ 301.6221(b)–1(c)(3) requires a 

partnership that makes an election 

under section 6221(b) to notify its 

partners within 30 days of making the 

election. One comment requested that 

the final regulations clarify whether the 

partnership has to notify shareholders of 

an S corporation partner that the 

partnership has made the election. 

Under TEFRA, the term ‘‘partner’’ was 

defined to include both direct and 

indirect partners. See section 6231(a)(2) 

(prior to amendment by the BBA). 

Section 1101(a) of the BBA repealed the 

partnership audit procedures under 

TEFRA, including the definition of 

partner. As a result, the only operative 

definition of the term ‘‘partner’’ in the 

Code is located in section 7701(a)(2). 

Under that definition, shareholders of 

an S corporation partner are not 

partners in the partnership making the 

election under section 6221(b) because 

they are not members of the partnership. 

Therefore, the partnership does not have 

to provide notice to the shareholders of 

an S corporation partner because those 

shareholders are not ‘‘its partners’’ 

within the meaning of § 301.6221(b)– 

1(c)(3). Accordingly, because the 

regulation is clear that the partnership 

only has to provide notice to its 

partners, this comment recommending 

that the regulation be clarified on this 

point was not adopted. Further, it 

would be burdensome for the 

partnership making the election to have 

to notify both the S corporation and the 

S corporation shareholders. It should be 

sufficient that the partnership notify its 

partner, the S corporation. Whether and 

how the S corporation wishes to notify 

its shareholders is something that is left 

to the S corporation and its shareholders 

to determine. 

Two comments suggested that the IRS 

should add a checkbox to the statements 

required to be furnished by the 

partnership under section 6031(b) 

indicating that the partnership has made 

an election under section 6221(b). The 

checkbox would serve as the 

notification of the election as required 

by § 301.6221(b)–1(c)(3). This comment 

was not adopted because the regulations 

intentionally do not prescribe the 

method a partnership must use to notify 

its partners of the election. Under the 

regulations, the partnership has the 

flexibility to notify its partners in the 

manner that is in the best interests of 

the partnership and its partners. At this 

point, the Treasury Department and the 

IRS have considered the method the 

partnership notifies its partners to be a 

business decision of the partnership. 

Section 6221(b) requires only that the 

partnership notify its partners in the 

manner prescribed by the Treasury 

Department and the IRS. Accordingly, 

the Treasury Department and the IRS 

have refrained from regulating more 

specifically on this issue, and therefore 

this comment was not adopted. 

However, the proposed regulations are 

amended in the final regulations to 

make clear that the manner of 

notification is left to the partnership to 

determine. 

One comment recommended that the 

final regulations include a mechanism 

for allowing the partnership to make 

corrections to the election to cure any 

compliance errors. The Treasury 

Department and the IRS determined that 

these procedures, if needed, are more 

appropriately addressed in subregulatory guidance, which is more 

routinely updated and can be improved 

based upon experience. Under 

§ 301.6221(b)–1(e) and as explained 

more fully in the preamble to the June 

14 NPRM, an election under section 

6221(b) may be relied upon unless 

challenged by the IRS. That includes 

situations where the election is not fully 

compliant with all applicable rules. As 

provided under § 301.6221(b)–1(e)(2), 

the IRS will notify the partnership if the 

IRS determines the partnership’s 

election is invalid. Nothing in these 

regulations prohibits the partnership 

from working with the IRS if an election 

is deficient to correct any minor errors. 

By not providing a correction procedure 

in the regulations, the IRS and the 

partnership have more flexibility to 

address any errors in an election that 

may not be afforded if the regulations 

provided for rules for some situations 

but not others. Accordingly, the 

comment to include a correction 

procedure in the regulations was not 

adopted. 

Finally, one comment recommended 

that the final regulations place a 

reasonable restriction on the time the 

IRS has to determine whether an 

election under section 6221(b) is 

invalid. The comment suggested that a 

period of 180 days from the filing of the 

return would be a reasonable time. This 

comment was not adopted because this 

would effectively impose a significant 

shortening of the period of limitations 

on when the IRS would be able to 

examine a partnership’s return and 

make adjustments. Limiting the time 

within which the IRS may review the 

validity of an election would effectively 

force the IRS to decide within that 

specified time period whether it 

intended to review the election, even if 

the IRS had no intention at that time of 

ultimately examining the partnership’s 

return. 

Section 6221(b) did not provide a 

specific period of limitations for a 

determination that an election under 

section 6221(b) is invalid. Nevertheless, 

the period for determining an election 

purportedly made under section 6221(b) 

is invalid is not unlimited. The period 

of limitations on making adjustments 

under section 6235 limits the time 


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Federal Register / Vol. 83, No. 1 / Tuesday, January 2, 2018 / Rules and Regulations 31 

within which the IRS may make a 

partnership adjustment, which will also 

serve as a practical limitation on when 

the IRS must decide whether to 

determine an election under section 

6221(b) is invalid. If a purported 

election is determined to be invalid by 

the IRS, the partnership would be 

subject to the centralized partnership 

audit regime, and no partnership 

adjustment could be made by the IRS 

after the period prescribed in section 

6235. For the reasons state above, the 

comment to establish a separate period 

for evaluating elections was not 

adopted. 

In addition to addressing the 

comments received in response to the 

June 14 NPRM, this Treasury Decision 

also makes editorial, non-substantive 

changes to the proposed regulations 

under section 6221(b). 

Special Analyses 

Certain IRS regulations, including this 

one, are exempt from the requirements 

of Executive Order 12866, as 

supplemented by Executive Order 

13563. Therefore, a regulatory impact 

assessment is not required. 

It is hereby certified that these rules 

will not have a significant economic 

impact on a substantial number of small 

entities. Although these rules may affect 

a substantial number of small entities, 

the economic impact is not substantial 

because these rules merely provides 

guidance on the statutory requirements 

for making an election out of the 

centralized partnership audit regime. 

These rules reduce the existing burden 

on partnerships to comply with the 

statutory requirements by providing 

clear rules and guidance regarding the 

statutory requirements for partnerships 

desiring to make an election out of the 

centralized partnership audit regime 

under section 6221(b). For the reasons 

stated, the final rules will not have a 

significant economic impact on a 

substantial number of small entities. 

Accordingly, a regulatory flexibility 

analysis under the Regulatory 

Flexibility Act (5 U.S.C. Chapter 6) is 

not required. 

Pursuant to section 7805(f) of the 

Code, the notice of proposed rulemaking 

preceding these regulations was 

submitted to the Chief Counsel for 

Advocacy of the Small Business 

Administration for comment on its 

impact on small business, and no 

comments were received. 

Statement of Availability of IRS 

Documents 

IRS Revenue Procedures, Revenue 

Rulings, Notices and other guidance 

cited in this preamble are published in 

the Internal Revenue Bulletin (or 

Cumulative Bulletin) and are available 

from the Superintendent of Documents, 

U.S. Government Publishing Office, 

Washington, DC 20402, or by visiting 

the IRS website at www.irs.gov. 

Drafting Information 

The principal author of these final 

regulations is Jennifer M. Black of the 

Office of the Associate Chief Counsel 

(Procedure and Administration). 

However, other personnel from the 

Treasury Department and the IRS 

participated in their development. 

List of Subjects in 26 CFR Part 301 

Employment taxes, Estate taxes, 

Excise taxes, Gift taxes, Income taxes, 

Penalties, Reporting and recordkeeping 

requirements. 

Adoption of Amendments to the 

Regulations 

Accordingly, 26 CFR part 301 is 

amended as follows: 

PART 301—PROCEDURE AND 

ADMINISTRATION 

■ Paragraph 1. The authority citation for 

part 301 continues to read in part as 

follows: 

Authority: 26 U.S.C. 7805 * * * 

■ Par. 2. Section 301.6221(b)–1 is added 

to read as follows: 

§ 301.6221(b)–1 Election out for certain 

partnerships with 100 or fewer partners. 

(a) In general. The provisions of 

subchapter C of chapter 63 of the 

Internal Revenue Code (subchapter C of 

chapter 63) do not apply for any 

partnership taxable year for which an 

eligible partnership under paragraph (b) 

of this section makes a valid election in 

accordance with paragraph (c) of this 

section. For rules regarding deficiency 

procedures, see subchapter B of chapter 

63 of the Internal Revenue Code and 

§§ 301.6211–1 through 301.6215–1. 

(b) Eligible partnership—(1) In 

general. Only an eligible partnership 

may make an election under this 

section. A partnership is an eligible 

partnership for purposes of this section 

if— 

(i) The partnership has 100 or fewer 

partners as determined in accordance 

with paragraph (b)(2) of this section, 

and 

(ii) Each statement the partnership is 

required to furnish under section 

6031(b) for the partnership taxable year 

is furnished to a partner that was an 

eligible partner (as defined in paragraph 

(b)(3) of this section) for the 

partnership’s entire taxable year. 

(2) 100 or fewer partners—(i) In 

general. Except as provided in 

paragraph (b)(2)(ii) of this section, a 

partnership has 100 or fewer partners if 

the partnership is required to furnish 

100 or fewer statements under section 

6031(b) for the taxable year. 

(ii) Special rule for S corporations. 

For purposes of this paragraph (b)(2), a 

partnership with a partner that is an S 

corporation (as defined in section 

1361(a)(1)) must take into account each 

statement required to be furnished by 

the S corporation to its shareholders 

under section 6037(b) for the taxable 

year of the S corporation ending with or 

within the partnership’s taxable year. 

(iii) Examples. The following 

examples illustrate the provisions of 

this paragraph (b)(2). For purposes of 

these examples, each partnership is 

required to file a return under section 

6031(a): 

Example 1. During its 2020 partnership 

taxable year, Partnership has four partners 

each owning an interest in Partnership. Two 

of the partners are Spouse 1 and Spouse 2 

who are married to each other during all of 

2020. Spouse 1 and Spouse 2 each own a 

separate interest in Partnership. The two 

other partners are unmarried individuals. 

Under section 6031(b), Partnership is 

required to furnish a separate statement (that 

is, Schedule K–1 (Form 1065), Partner’s 

Share of Income, Deductions, Credits, etc.) to 

each individual partner, including separate 

statements to Spouse 1 and Spouse 2. 

Therefore, for purposes of this paragraph 

(b)(2), Partnership has four partners during 

its 2020 taxable year. 

Example 2. The facts are the same as in 

Example 1 of this paragraph (b)(2)(iii), except 

Spouse 2 does not separately own an interest 

in Partnership during 2020 and Spouse 1 and 

Spouse 2 live in a community property state, 

State A. Spouse 1 acquired the partnership 

interest in such a manner that by operation 

of State A law, Spouse 2 has a community 

property interest in Spouse 1’s partnership 

interest. Because Spouse 2’s community 

property interest in Spouse 1’s partnership 

interest is not taken into account for 

purposes of determining the number of 

statements Partnership is required to furnish 

under section 6031(b), Partnership is 

required to furnish a statement to Spouse 1, 

but not to Spouse 2. Therefore, for purposes 

of this paragraph (b)(2), Partnership has three 

partners during its 2020 taxable year. 

Example 3. At the beginning of 2020, 

Partnership, which has a taxable year ending 

December 31, 2020, has three partners— 

individuals A, B, and C. Each individual 

owns an interest in Partnership. On June 30, 

2020, Individual A dies, and A’s interest in 

Partnership becomes an asset of A’s estate. 

A’s estate owns the interest for the remainder 

of 2020. On September 1, 2020, B sells his 

interest in Partnership to Individual D, who 

holds the interest for the remainder of the 

year. Under section 6031(b), Partnership is 

required to furnish five statements for its 


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32 Federal Register / Vol. 83, No. 1 / Tuesday, January 2, 2018 / Rules and Regulations 

2020 taxable year—one each to Individual A, 

the estate of Individual A, Individual B, 

Individual C, and Individual D. Therefore, for 

purposes of this paragraph (b)(2), Partnership 

has five partners during its 2020 taxable year. 

Example 4. During its 2020 taxable year, 

Partnership has 51 partners—50 partners 

who are individuals and S, an S corporation. 

S and Partnership are both calendar year 

taxpayers. S has 50 shareholders during the 

2020 taxable year. Under section 6031(b), 

Partnership is required to furnish 51 

statements for the 2020 taxable year—one to 

S and one to each of Partnership’s 50 

partners who are individuals. Under section 

6037(b), S is required to furnish a statement 

(that is, Schedule K–1 (Form 1120–S), 

Shareholder’s Share of Income, Deductions, 

Credits, etc.) to each of its 50 shareholders. 

Under paragraph (b)(2)(ii) of this section, the 

number of statements required to be 

furnished by S under section 6037(b), which 

is 50, is taken into account to determine 

whether partnership has 100 or fewer 

partners. Accordingly, for purposes of this 

paragraph (b)(2), Partnership has a total of 

101 partners (51 statements furnished by 

Partnership to its partners plus 50 statements 

furnished by S to its shareholders) and is 

therefore not an eligible partnership under 

paragraph (b)(1) of this section. Because 

Partnership is not an eligible partnership, it 

cannot make the election under paragraph (a) 

of this section. 

Example 5. During its 2020 taxable year, 

Partnership has two partners, A, an 

individual, and E, an estate of a deceased 

partner. E has 10 beneficiaries. Under section 

6031(b), Partnership is required to furnish 

two statements, one to A and one to E. Any 

statements that E may be required to furnish 

to its beneficiaries are not taken into account 

for purposes of this paragraph (b)(2). 

Therefore, for purposes of this paragraph 

(b)(2), Partnership has two partners. 

(3) Eligible Partners—(i) In general. 

For purposes of paragraph (b)(1)(ii) of 

this section, the term eligible partner 

means a partner that is an individual, a 

C corporation (as defined by section 

1361(a)(2)), an eligible foreign entity 

described in paragraph (b)(3)(iii) of this 

section, an S corporation, or an estate of 

a deceased partner. An S corporation is 

an eligible partner regardless of whether 

one or more shareholders of the S 

corporation are not an eligible partner. 

(ii) Partners that are not eligible 

partners. A partner is not an eligible 

partner under paragraph (b)(3)(i) of this 

section if the partner is— 

(A) A partnership, 

(B) A trust, 

(C) A foreign entity that is not an 

eligible foreign entity described in 

paragraph (b)(3)(iii) of this section, 

(D) A disregarded entity described in 

§ 301.7701–2(c)(2)(i), 

(E) An estate of an individual other 

than a deceased partner, or 

(F) Any person that holds an interest 

in the partnership on behalf of another 

person. 

(iii) Eligible foreign entity. For 

purposes of this paragraph (b)(3), a 

foreign entity is an eligible partner if the 

foreign entity would be treated as a C 

corporation if it were a domestic entity. 

For purposes of the preceding sentence, 

a foreign entity would be treated as a C 

corporation if it were a domestic entity 

if the entity is classified as a per se 

corporation under § 301.7701–2(b)(1), 

(3), (4), (5), (6), (7), or (8), is classified 

by default as an association taxable as 

a corporation under § 301.7701– 

3(b)(2)(i)(B), or is classified as an 

association taxable as a corporation in 

accordance with an election under 

§ 301.7701–3(c). 

(iv) Examples. The following 

examples illustrate the rules of this 

paragraph (b)(3). For purposes of these 

examples, each partnership is required 

to file a return under section 6031(a): 

Example 1. During the 2020 taxable year, 

Partnership has four equal partners. Two 

partners are individuals. One partner is a C 

corporation. The fourth partner, D, is a 

partnership. Because D is a partnership, D is 

not an eligible partner under paragraph 

(b)(3)(i) of this section. Accordingly, 

Partnership is not an eligible partnership 

under paragraph (b)(1) of this section and, 

therefore, cannot make the election under 

paragraph (a) of this section for its 2020 

taxable year. 

Example 2. During its 2020 taxable year, 

Partnership has four equal partners. Two 

partners are individuals. One partner is a C 

corporation. The fourth partner, S, is an S 

corporation. S has ten shareholders. One of 

S’s shareholders is a disregarded entity, and 

one is a qualified small business trust. S is 

an eligible partner under paragraph (b)(3)(i) 

of this section even though S’s shareholders 

would not be considered eligible partners if 

those shareholders held direct interests in 

Partnership. See paragraph (b)(3)(i) of this 

section. Accordingly, Partnership meets the 

requirements under this paragraph (b)(3) for 

its 2020 taxable year. 

Example 3. During its 2020 taxable year, 

Partnership has two equal partners, A, an 

individual, and C, a disregarded entity, 

wholly owned by B, an individual. C is not 

an eligible partner under paragraph (b)(3)(i) 

of this section. Accordingly, Partnership is 

not an eligible partnership under paragraph 

(b)(1) of this section and, therefore, is 

ineligible to make the election under 

paragraph (a) of this section for its 2020 

taxable year. 

(c) Election—(1) In general. An 

election under this section must be 

made on the eligible partnership’s 

timely filed return, including 

extensions, for the taxable year to which 

the election applies and include all 

information required by the Internal 

Revenue Service (IRS) in forms, 

instructions, or other guidance. An 

election is not valid unless the 

partnership discloses to the IRS all of 

the information required under 

paragraph (c)(2) of this section and, in 

the case of a partner that is an S 

corporation, the shareholders of such S 

corporation. An election once made may 

not be revoked without the consent of 

the IRS. 

(2) Disclosure of partner information 

to the IRS. A partnership making an 

election under this section must 

disclose to the IRS information about 

each person that was a partner at any 

time during the taxable year of the 

partnership to which the election 

applies, including each partner’s name 

and correct U.S. taxpayer identification 

number (TIN) (or alternative form of 

identification required by forms, 

instructions, or other guidance), each 

partner’s Federal tax classification, an 

affirmative statement that the partner is 

an eligible partner under paragraph 

(b)(3)(i) of this section, and any other 

information required by the IRS in 

forms, instructions, or other guidance. If 

a partner is an S corporation, the 

partnership must also disclose to the 

IRS information about each shareholder 

of the S corporation that was a 

shareholder at any time during the 

taxable year of the S corporation ending 

with or within the partnership’s taxable 

year, including each shareholder’s name 

and correct TIN (or alternative form of 

identification as prescribed by forms, 

instructions, or other guidance), each 

shareholder’s Federal tax classification, 

and any other information required by 

the IRS in forms, instructions, or other 

guidance. 

(3) Partner notification. A partnership 

that makes an election under this 

section must notify each of its partners 

of the election within 30 days of making 

the election in the form and manner 

determined by the partnership. 

(d) Election made by a partnership 

that is a partner–(1) In general. The fact 

that a partnership has made an election 

under this section does not affect 

whether the provisions of subchapter C 

of chapter 63 apply to any other 

partnership, including a partnership in 

which the partnership making the 

election is a partner. Accordingly, the 

provisions of subchapter C of chapter 63 

that apply to partners in a partnership 

that has not made an election under this 

section apply, to the extent provided in 

the regulations under subchapter C of 

chapter 63, to partners (that are 

themselves partnerships that have made 

an election under this section) in their 

capacity as partners in the other 

partnership. 

(2) Examples. The following examples 

illustrate the rules of paragraph (d)(1) of 

this section. For purposes of these 


daltland on DSKBBV9HB2PROD with RULES
Federal Register / Vol. 83, No. 1 / Tuesday, January 2, 2018 / Rules and Regulations 33 

examples, each partnership is required 

to file a return under section 6031(a): 

Example 1. During its 2020 taxable year, 

Partnership, a calendar year taxpayer, has 

two partners. One partner, A, is also a 

calendar year partnership. A files a valid 

election under this section with its timely 

filed partnership return for its 2020 taxable 

year. Partnership does not file an election 

under this section. Notwithstanding A’s valid 

election under this section, with respect to 

A’s interest in Partnership, A is subject to the 

rules applicable to partners in a partnership 

subject to the rules under subchapter C of 

chapter 63, including the consistency 

requirements of section 6222 and the 

regulations thereunder. 

Example 2. The facts are the same as 

Example 1 of this paragraph (d)(2). The IRS 

mails to Partnership a notice of final 

partnership adjustment under section 6231 

with respect to Partnership’s 2020 taxable 

year. Partnership timely elects the alternative 

to payment of imputed underpayment under 

section 6226 and the regulations thereunder. 

Partnership must provide A with a statement 

under section 6226 reflecting A’s share of the 

adjustments for Partnership’s 2020 taxable 

year. A is subject to the rules applicable to 

partners in a partnership subject to the rules 

under subchapter C of chapter 63 with 

respect to A’s interest in Partnership. 

(e) Effect of an election—(1) In 

general. An election made under this 

section is an action taken under 

subchapter C of chapter 63 by the 

partnership for purposes of section 

6223. Accordingly, the partnership and 

all partners are bound by an election of 

the partnership under this section 

unless the IRS determines that the 

election is invalid. See § 301.6223–2 for 

the binding nature of actions taken by 

a partnership under subchapter C of 

chapter 63. 

(2) IRS determination that election is 

invalid. If the IRS determines that an 

election under this section for a 

partnership taxable year is invalid, the 

IRS will notify the partnership in 

writing and the provisions of subchapter 

C of chapter 63 will apply to that 

partnership taxable year. 

(f) Applicability date. These 

regulations are applicable to partnership 

taxable years beginning after December 

31, 2017. 

Kirsten Wielobob, 

Deputy Commissioner for Services and 

Enforcement. 

Approved: December 22, 2017. 

David J. Kautter, 

Assistant Secretary of the Treasury (Tax 

Policy). 

[FR Doc. 2017–28398 Filed 12–29–17; 8:45 am] 

BILLING CODE 4830–01–P 

ENVIRONMENTAL PROTECTION 

AGENCY 

40 CFR Part 52 

[EPA–R02–OAR–2017–0013; FRL 9971–28– 

Region 2] 

Approval and Revision of Air Quality 

Implementation Plans; State of New 

York; Regional Haze State and Federal 

Implementation Plans 

Correction 

In rule document 2017–25945 

beginning on page 57126 in the issue of 

Monday December 4, 2017, make the 

following correction: 

§ 52.1670 [Corrected] 

■ In § 52.1670, on page 57130, in the 

table, beneath the column titled ‘‘EPA 

approval date’’, ‘‘11/4/17’’ should read 

‘‘12/4/17’’. 

[FR Doc. C1–2017–25945 Filed 12–29–17; 8:45 am] 

BILLING CODE 1301–00–D 

ENVIRONMENTAL PROTECTION 

AGENCY 

40 CFR Part 180 

[EPA–HQ–OPP–2015–0717; FRL–9970–03] 

Phenylethyl acetate; Exemption From 

the Requirement of a Tolerance 

AGENCY: Environmental Protection 

Agency (EPA). 

ACTION: Final rule. 

SUMMARY: This regulation establishes an 

exemption from the requirement of a 

tolerance for residues of phenylethyl 

acetate (CAS Reg. No. 103–45–7) when 

used as an inert ingredient (solvent) at 

a maximum of 0.015% in pesticide 

formulations applied to growing crops 

and raw agricultural commodities after 

harvest. Technology Science Group Inc., 

on behalf of Janeil Biosurfactant 

Company, submitted a petition to EPA 

under the Federal Food, Drug, and 

Cosmetic Act (FFDCA), requesting 

establishment of an exemption from the 

requirement of a tolerance. 

DATES: This regulation is effective 

January 2, 2018. Objections and requests 

for hearings must be received on or 

before March 5, 2018, and must be filed 

in accordance with the instructions 

provided in 40 CFR part 178 (see also 

Unit I.C. of the SUPPLEMENTARY

INFORMATION). 

ADDRESSES: The docket for this action, 

identified by docket identification (ID) 

number EPA–HQ–OPP–2015–0717, is 

available at http://www.regulations.gov 

or at the Office of Pesticide Programs 

Regulatory Public Docket (OPP Docket) 

in the Environmental Protection Agency 

Docket Center (EPA/DC), West William 

Jefferson Clinton Bldg., Rm. 3334, 1301 

Constitution Ave. NW, Washington, DC 

20460–0001. The Public Reading Room 

is open from 8:30 a.m. to 4:30 p.m., 

Monday through Friday, excluding legal 

holidays. The telephone number for the 

Public Reading Room is (202) 566–1744, 

and the telephone number for the OPP 

Docket is (703) 305–5805. Please review 

the visitor instructions and additional 

information about the docket available 

at http://www.epa.gov/dockets. 

FOR FURTHER INFORMATION CONTACT: 

Michael Goodis, Registration Division 

(7505P), Office of Pesticide Programs, 

Environmental Protection Agency, 1200 

Pennsylvania Ave. NW, Washington, DC 

20460–0001; main telephone number: 

(703) 305–7090; email address: 

RDFRNotices@epa.gov. 

SUPPLEMENTARY INFORMATION: 

I. General Information 

A. Does this action apply to me? 

You may be potentially affected by 

this action if you are an agricultural 

producer, food manufacturer, or 

pesticide manufacturer. The following 

list of North American Industrial 

Classification System (NAICS) codes is 

not intended to be exhaustive, but rather 

provides a guide to help readers 

determine whether this document 

applies to them. Potentially affected 

entities may include: 

• Crop production (NAICS code 111). 

• Animal production (NAICS code 

112). 

• Food manufacturing (NAICS code 

311). 

• Pesticide manufacturing (NAICS 

code 32532). 

B. How can I get electronic access to 

other related information? 

You may access a frequently updated 

electronic version of 40 CFR part 180 

through the Government Printing 

Office’s e-CFR site at http://

www.ecfr.gov/cgi-bin/text-idx?&c=

ecfr&tpl=/ecfrbrowse/Title40/40tab_

02.tpl. To access the OCSPP test 

guidelines referenced in this document 

electronically, please go to http://

www.epa.gov/ocspp and select ‘‘Test 

Methods and Guidelines.’’ 

C. How can I file an objection or hearing 

request? 

Under FFDCA section 408(g), 21 

U.S.C. 346a, any person may file an 

objection to any aspect of this regulation 

and may also request a hearing on those 

objections. You must file your objection 

or request a hearing on this regulation 


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