546
‘‘(ii) Sections 49 and 465 (relating to
at risk limitations).
‘‘(iii) Section 469 (relating to limita-
tion on passive activity losses and credits).
‘‘(iv) Any other provision specified in
regulations.
‘‘(4) COORDINATION
WITH
OTHER
PROVI-
SIONS.—Paragraphs (2) and (3) shall apply notwith-
standing any other provision of this chapter other
than this part.
‘‘(b) MODIFICATIONS TO DETERMINATION OF TAX-
ABLE INCOME.—In determining the taxable income of an
electing large partnership—
‘‘(1) CERTAIN DEDUCTIONS NOT ALLOWED.—
The following deductions shall not be allowed:
‘‘(A) The deduction for personal exemp-
tions provided in section 151.
‘‘(B) The net operating loss deduction pro-
vided in section 172.
‘‘(C) The additional itemized deductions
for individuals provided in part VII of sub-
chapter B (other than section 212 thereof).
‘‘(2) CHARITABLE DEDUCTIONS.—In determin-
ing the amount allowable under section 170, the lim-
itation of section 170(b)(2) shall apply.
547
‘‘(3) COORDINATION WITH SECTION 67.—In lieu
of applying section 67, 70 percent of the amount of
the miscellaneous itemized deductions shall be dis-
allowed.
‘‘(c) SPECIAL RULES FOR INCOME FROM DISCHARGE
OF INDEBTEDNESS.—If an electing large partnership has
income from the discharge of any indebtedness—
‘‘(1) such income shall be excluded in determin-
ing the amounts referred to in section 772(a), and
‘‘(2) in determining the income tax of any part-
ner of such partnership—
‘‘(A) such income shall be treated as an
item required to be separately taken into ac-
count under section 772(a), and
‘‘(B) the provisions of section 108 shall be
applied without regard to this part.
‘‘SEC. 774. OTHER MODIFICATIONS.
‘‘(a) TREATMENT OF CERTAIN OPTIONAL ADJUST-
MENTS, ETC.—In the case of an electing large partner-
ship—
‘‘(1) computations under section 773 shall be
made without regard to any adjustment under sec-
tion 743(b) or 108(b), but
‘‘(2) a partner’s distributive share of any
amount referred to in section 772(a) shall be appro-
548
priately adjusted to take into account any adjust-
ment under section 743(b) or 108(b) with respect to
such partner.
‘‘(b) CREDIT RECAPTURE DETERMINED AT PART-
NERSHIP LEVEL.—
‘‘(1) IN GENERAL.—In the case of an electing
large partnership—
‘‘(A) any credit recapture shall be taken
into account by the partnership, and
‘‘(B) the amount of such recapture shall be
determined as if the credit with respect to
which the recapture is made had been fully uti-
lized to reduce tax.
‘‘(2) METHOD OF TAKING RECAPTURE INTO AC-
COUNT.—An electing large partnership shall take
into account a credit recapture by reducing the
amount of the appropriate current year credit to the
extent thereof, and if such recapture exceeds the
amount of such current year credit, the partnership
shall be liable to pay such excess.
‘‘(3) DISPOSITIONS NOT TO TRIGGER RECAP-
TURE.—No credit recapture shall be required by rea-
son of any transfer of an interest in an electing
large partnership.
549
‘‘(4) CREDIT
RECAPTURE.—For purposes of
this subsection, the term ‘credit recapture’ means
any increase in tax under section 42(j) or 50(a).
‘‘(c) PARTNERSHIP NOT TERMINATED BY REASON
OF CHANGE IN OWNERSHIP.—Subparagraph (B) of sec-
tion 708(b)(1) shall not apply to an electing large partner-
ship.
‘‘(d) PARTNERSHIP ENTITLED TO CERTAIN CRED-
ITS.—The following shall be allowed to an electing large
partnership and shall not be taken into account by the
partners of such partnership:
‘‘(1) The credit provided by section 34.
‘‘(2) Any credit or refund under section
852(b)(3)(D).
‘‘(e) TREATMENT OF REMIC RESIDUALS.—For pur-
poses of applying section 860E(e)(6) to any electing large
partnership—
‘‘(1) all interests in such partnership shall be
treated as held by disqualified organizations,
‘‘(2) in lieu of applying subparagraph (C) of
section 860E(e)(6), the amount subject to tax under
section 860E(e)(6) shall be excluded from the gross
income of such partnership, and
‘‘(3) subparagraph (D) of section 860E(e)(6)
shall not apply.
550
‘‘(f) SPECIAL RULES FOR APPLYING CERTAIN IN-
STALLMENT SALE RULES.—In the case of an electing
large partnership—
‘‘(1) the provisions of sections 453(l)(3) and
453A shall be applied at the partnership level, and
‘‘(2) in determining the amount of interest pay-
able under such sections, such partnership shall be
treated as subject to tax under this chapter at the
highest rate of tax in effect under section 1 or 11.
‘‘SEC. 775. ELECTING LARGE PARTNERSHIP DEFINED.
‘‘(a) GENERAL RULE.—For purposes of this part—
‘‘(1) IN
GENERAL.—The term ‘electing large
partnership’ means, with respect to any partnership
taxable year, any partnership if—
‘‘(A) the number of persons who were part-
ners in such partnership in the preceding part-
nership taxable year equaled or exceeded 100,
and
‘‘(B) such partnership elects the applica-
tion of this part.
To the extent provided in regulations, a partnership
shall cease to be treated as an electing large part-
nership for any partnership taxable year if in such
taxable year fewer than 100 persons were partners
in such partnership.
551
‘‘(2) ELECTION.—The election under this sub-
section shall apply to the taxable year for which
made and all subsequent taxable years unless re-
voked with the consent of the Secretary.
‘‘(b) SPECIAL RULES FOR CERTAIN SERVICE PART-
NERSHIPS.—
‘‘(1) CERTAIN PARTNERS NOT COUNTED.—For
purposes of this section, the term ‘partner’ does not
include any individual performing substantial serv-
ices in connection with the activities of the partner-
ship and holding an interest in such partnership, or
an individual who formerly performed substantial
services in connection with such activities and who
held an interest in such partnership at the time the
individual performed such services.
‘‘(2) EXCLUSION.—For purposes of this part,
an election under subsection (a) shall not be effec-
tive with respect to any partnership if substantially
all the partners of such partnership—
‘‘(A) are individuals performing substantial
services in connection with the activities of such
partnership or are personal service corporations
(as defined in section 269A(b)) the owner-em-
ployees (as defined in section 269A(b)) of which
perform such substantial services,
552
‘‘(B) are retired partners who had per-
formed such substantial services, or
‘‘(C) are spouses of partners who are per-
forming (or had previously performed) such
substantial services.
‘‘(3) SPECIAL RULE FOR LOWER TIER PART-
NERSHIPS.—For purposes of this subsection, the ac-
tivities of a partnership shall include the activities of
any other partnership in which the partnership owns
directly an interest in the capital and profits of at
least 80 percent.
‘‘(c) EXCLUSION OF COMMODITY POOLS.—For pur-
poses of this part, an election under subsection (a) shall
not be effective with respect to any partnership the prin-
cipal activity of which is the buying and selling of com-
modities (not described in section 1221(1)), or options, fu-
tures, or forwards with respect to such commodities.
‘‘(d) SECRETARY MAY RELY ON TREATMENT ON RE-
TURN.—If, on the partnership return of any partnership,
such partnership is treated as an electing large partner-
ship, such treatment shall be binding on such partnership
and all partners of such partnership but not on the Sec-
retary.
553
‘‘SEC. 776. SPECIAL RULES FOR PARTNERSHIPS HOLDING
OIL AND GAS PROPERTIES.
‘‘(a) COMPUTATION OF PERCENTAGE DEPLETION.—
In the case of an electing large partnership, except as pro-
vided in subsection (b)—
‘‘(1) the allowance for depletion under section
611 with respect to any partnership oil or gas prop-
erty shall be computed at the partnership level with-
out regard to any provision of section 613A requir-
ing such allowance to be computed separately by
each partner,
‘‘(2) such allowance shall be determined without
regard to the provisions of section 613A(c) limiting
the amount of production for which percentage de-
pletion is allowable and without regard to paragraph
(1) of section 613A(d), and
‘‘(3) paragraph (3) of section 705(a) shall not
apply.
‘‘(b) TREATMENT OF CERTAIN PARTNERS.—
‘‘(1) IN GENERAL.—In the case of a disquali-
fied person, the treatment under this chapter of
such person’s distributive share of any item of in-
come, gain, loss, deduction, or credit attributable to
any partnership oil or gas property shall be deter-
mined without regard to this part. Such person’s
distributive share of any such items shall be ex-
554
cluded for purposes of making determinations under
sections 772 and 773.
‘‘(2) DISQUALIFIED PERSON.—For purposes of
paragraph (1), the term ‘disqualified person’ means,
with respect to any partnership taxable year—
‘‘(A) any person referred to in paragraph
(2) or (4) of section 613A(d) for such person’s
taxable year in which such partnership taxable
year ends, and
‘‘(B) any other person if such person’s av-
erage daily production of domestic crude oil and
natural gas for such person’s taxable year in
which such partnership taxable year ends ex-
ceeds 500 barrels.
‘‘(3) AVERAGE DAILY PRODUCTION.—For pur-
poses of paragraph (2), a person’s average daily pro-
duction of domestic crude oil and natural gas for
any taxable year shall be computed as provided in
section 613A(c)(2)—
‘‘(A) by taking into account all production
of domestic crude oil and natural gas (including
such person’s proportionate share of any pro-
duction of a partnership),
‘‘(B) by treating 6,000 cubic feet of natu-
ral gas as a barrel of crude oil, and
555
‘‘(C) by treating as 1 person all persons
treated as 1 taxpayer under section 613A(c)(8)
or among whom allocations are required under
such section.
‘‘SEC. 777. REGULATIONS.
‘‘The Secretary shall prescribe such regulations as
may be appropriate to carry out the purposes of this
part.’’.
(b) CLERICAL AMENDMENT.—The table of parts for
subchapter K of chapter 1 is amended by adding at the
end the following new item:
‘‘Part IV. Special rules for electing large partnerships.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to partnership taxable years begin-
ning after December 31, 1997.
SEC. 1222. SIMPLIFIED AUDIT PROCEDURES FOR ELECTING
LARGE PARTNERSHIPS.
(a) GENERAL RULE.—Chapter 63 is amended by
adding at the end thereof the following new subchapter:
‘‘Subchapter D—Treatment of electing large
partnerships
‘‘Part I. Treatment of partnership items and adjustments.
‘‘Part II. Partnership level adjustments.
‘‘Part III. Definitions and special rules.
‘‘PART I—TREATMENT OF PARTNERSHIP ITEMS
AND ADJUSTMENTS
‘‘Sec. 6240. Application of subchapter.
556
‘‘Sec. 6241. Partner’s return must be consistent with partnership
return.
‘‘Sec. 6242. Procedures for taking partnership adjustments into
account.
‘‘SEC. 6240. APPLICATION OF SUBCHAPTER.
‘‘(a) GENERAL RULE.—This subchapter shall only
apply to electing large partnerships and partners in such
partnerships.
‘‘(b) COORDINATION WITH OTHER PARTNERSHIP
AUDIT PROCEDURES.—
‘‘(1) IN GENERAL.—Subchapter C of this chap-
ter shall not apply to any electing large partnership
other than in its capacity as a partner in another
partnership which is not an electing large partner-
ship.
‘‘(2) TREATMENT WHERE PARTNER IN OTHER
PARTNERSHIP.—If an electing large partnership is a
partner in another partnership which is not an elect-
ing large partnership—
‘‘(A) subchapter C of this chapter shall
apply to items of such electing large partner-
ship which are partnership items with respect
to such other partnership, but
‘‘(B) any adjustment under such sub-
chapter C shall be taken into account in the
manner provided by section 6242.
557
‘‘SEC. 6241. PARTNER’S RETURN MUST BE CONSISTENT
WITH PARTNERSHIP RETURN.
‘‘(a) GENERAL RULE.—A partner of any electing
large partnership shall, on the partner’s return, treat each
partnership item attributable to such partnership in a
manner which is consistent with the treatment of such
partnership item on the partnership return.
‘‘(b) UNDERPAYMENT
DUE
TO
INCONSISTENT
TREATMENT ASSESSED AS MATH ERROR.—Any under-
payment of tax by a partner by reason of failing to comply
with the requirements of subsection (a) shall be assessed
and collected in the same manner as if such underpayment
were on account of a mathematical or clerical error ap-
pearing on the partner’s return. Paragraph (2) of section
6213(b) shall not apply to any assessment of an underpay-
ment referred to in the preceding sentence.
‘‘(c) ADJUSTMENTS NOT TO AFFECT PRIOR YEAR
OF PARTNERS.—
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), subsections (a) and (b) shall apply with-
out regard to any adjustment to the partnership
item under part II.
‘‘(2) CERTAIN
CHANGES
IN
DISTRIBUTIVE
SHARE TAKEN INTO ACCOUNT BY PARTNER.—
‘‘(A) IN
GENERAL.—To the extent that
any adjustment under part II involves a change
558
under section 704 in a partner’s distributive
share of the amount of any partnership item
shown on the partnership return, such adjust-
ment shall be taken into account in applying
this title to such partner for the partner’s tax-
able year for which such item was required to
be taken into account.
‘‘(B) COORDINATION
WITH
DEFICIENCY
PROCEDURES.—
‘‘(i) IN
GENERAL.—Subchapter B
shall not apply to the assessment or collec-
tion of any underpayment of tax attrib-
utable to an adjustment referred to in sub-
paragraph (A).
‘‘(ii) 
ADJUSTMENT
NOT
PRE-
CLUDED.—Notwithstanding any other law
or rule of law, nothing in subchapter B (or
in any proceeding under subchapter B)
shall preclude the assessment or collection
of any underpayment of tax (or the allow-
ance of any credit or refund of any over-
payment of tax) attributable to an adjust-
ment referred to in subparagraph (A) and
such assessment or collection or allowance
(or any notice thereof) shall not preclude
559
any notice, proceeding, or determination
under subchapter B.
‘‘(C) PERIOD OF LIMITATIONS.—The pe-
riod for—
‘‘(i) assessing any underpayment of
tax, or
‘‘(ii) filing a claim for credit or refund
of any overpayment of tax,
attributable to an adjustment referred to in
subparagraph (A) shall not expire before the
close of the period prescribed by section 6248
for making adjustments with respect to the
partnership taxable year involved.
‘‘(D) TIERED STRUCTURES.—If the part-
ner referred to in subparagraph (A) is another
partnership or an S corporation, the rules of
this paragraph shall also apply to persons hold-
ing interests in such partnership or S corpora-
tion (as the case may be); except that, if such
partner is an electing large partnership, the ad-
justment referred to in subparagraph (A) shall
be taken into account in the manner provided
by section 6242.
560
‘‘(d) ADDITION TO TAX FOR FAILURE TO COMPLY
WITH SECTION.—
‘‘For addition to tax in case of partner’s disregard
of requirements of this section, see part II of sub-
chapter A of chapter 68.
‘‘SEC. 6242. PROCEDURES FOR TAKING PARTNERSHIP AD-
JUSTMENTS INTO ACCOUNT.
‘‘(a) ADJUSTMENTS FLOW THROUGH TO PARTNERS
FOR YEAR IN WHICH ADJUSTMENT TAKES EFFECT.—
‘‘(1) IN GENERAL.—If any partnership adjust-
ment with respect to any partnership item takes ef-
fect (within the meaning of subsection (d)(2)) during
any partnership taxable year and if an election
under paragraph (2) does not apply to such adjust-
ment, such adjustment shall be taken into account
in determining the amount of such item for the part-
nership taxable year in which such adjustment takes
effect. In applying this title to any person who is
(directly or indirectly) a partner in such partnership
during such partnership taxable year, such adjust-
ment shall be treated as an item actually arising
during such taxable year.
‘‘(2) 
PARTNERSHIP
LIABLE
IN
CERTAIN
CASES.—If—
‘‘(A) a partnership elects under this para-
graph to not take an adjustment into account
under paragraph (1),
561
‘‘(B) a partnership does not make such an
election but in filing its return for any partner-
ship taxable year fails to take fully into account
any partnership adjustment as required under
paragraph (1), or
‘‘(C) any partnership adjustment involves a
reduction in a credit which exceeds the amount
of such credit determined for the partnership
taxable year in which the adjustment takes ef-
fect,
the partnership shall pay to the Secretary an
amount determined by applying the rules of sub-
section (b)(4) to the adjustments not so taken into
account and any excess referred to in subparagraph
(C).
‘‘(3) OFFSETTING ADJUSTMENTS TAKEN INTO
ACCOUNT.—If a partnership adjustment requires an-
other adjustment in a taxable year after the ad-
justed year and before the partnership taxable year
in which such partnership adjustment takes effect,
such other adjustment shall be taken into account
under this subsection for the partnership taxable
year in which such partnership adjustment takes ef-
fect.
562
‘‘(4) COORDINATION WITH PART II.—Amounts
taken into account under this subsection for any
partnership taxable year shall continue to be treated
as adjustments for the adjusted year for purposes of
determining whether such amounts may be read-
justed under part II.
‘‘(b) PARTNERSHIP LIABLE
FOR INTEREST
AND
PENALTIES.—
‘‘(1) IN
GENERAL.—If a partnership adjust-
ment takes effect during any partnership taxable
year and such adjustment results in an imputed
underpayment for the adjusted year, the partner-
ship—
‘‘(A) shall pay to the Secretary interest
computed under paragraph (2), and
‘‘(B) shall be liable for any penalty, addi-
tion to tax, or additional amount as provided in
paragraph (3).
‘‘(2) DETERMINATION OF AMOUNT OF INTER-
EST.—The interest computed under this paragraph
with respect to any partnership adjustment is the in-
terest which would be determined under chapter
67—
563
‘‘(A) on the imputed underpayment deter-
mined under paragraph (4) with respect to such
adjustment,
‘‘(B) for the period beginning on the day
after the return due date for the adjusted year
and ending on the return due date for the part-
nership taxable year in which such adjustment
takes effect (or, if earlier, in the case of any ad-
justment to which subsection (a)(2) applies, the
date on which the payment under subsection
(a)(2) is made).
Proper adjustments in the amount determined under
the preceding sentence shall be made for adjust-
ments required for partnership taxable years after
the adjusted year and before the year in which the
partnership adjustment takes effect by reason of
such partnership adjustment.
‘‘(3) PENALTIES.—A partnership shall be liable
for any penalty, addition to tax, or additional
amount for which it would have been liable if such
partnership had been an individual subject to tax
under chapter 1 for the adjusted year and the im-
puted underpayment determined under paragraph
(4) were an actual underpayment (or understate-
ment) for such year.
564
‘‘(4) IMPUTED UNDERPAYMENT.—For purposes
of this subsection, the imputed underpayment deter-
mined under this paragraph with respect to any
partnership adjustment is the underpayment (if any)
which would result—
‘‘(A) by netting all adjustments to items of
income, gain, loss, or deduction and by treating
any net increase in income as an underpayment
equal to the amount of such net increase multi-
plied by the highest rate of tax in effect under
section 1 or 11 for the adjusted year, and
‘‘(B) by taking adjustments to credits into
account as increases or decreases (whichever is
appropriate) in the amount of tax.
For purposes of the preceding sentence, any net de-
crease in a loss shall be treated as an increase in in-
come and a similar rule shall apply to a net increase
in a loss.
‘‘(c) ADMINISTRATIVE PROVISIONS.—
‘‘(1) IN GENERAL.—Any payment required by
subsection (a)(2) or (b)(1)(A)—
‘‘(A) shall be assessed and collected in the
same manner as if it were a tax imposed by
subtitle C, and
565
‘‘(B) shall be paid on or before the return
due date for the partnership taxable year in
which the partnership adjustment takes effect.
‘‘(2) INTEREST.—For purposes of determining
interest, any payment required by subsection (a)(2)
or (b)(1)(A) shall be treated as an underpayment of
tax.
‘‘(3) PENALTIES.—
‘‘(A) IN
GENERAL.—In the case of any
failure by any partnership to pay on the date
prescribed therefor any amount required by
subsection (a)(2) or (b)(1)(A), there is hereby
imposed on such partnership a penalty of 10
percent of the underpayment. For purposes of
the preceding sentence, the term ‘underpay-
ment’ means the excess of any payment re-
quired under this section over the amount (if
any) paid on or before the date prescribed
therefor.
‘‘(B) ACCURACY-RELATED
AND
FRAUD
PENALTIES MADE APPLICABLE.—For purposes
of part II of subchapter A of chapter 68, any
payment required by subsection (a)(2) shall be
treated as an underpayment of tax.
566
‘‘(d) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section—
‘‘(1) PARTNERSHIP
ADJUSTMENT.—The term
‘partnership adjustment’ means any adjustment in
the amount of any partnership item of an electing
large partnership.
‘‘(2) WHEN ADJUSTMENT TAKES EFFECT.—A
partnership adjustment takes effect—
‘‘(A) in the case of an adjustment pursu-
ant to the decision of a court in a proceeding
brought under part II, when such decision be-
comes final,
‘‘(B) in the case of an adjustment pursu-
ant to any administrative adjustment request
under section 6251, when such adjustment is
allowed by the Secretary, or
‘‘(C) in any other case, when such adjust-
ment is made.
‘‘(3) ADJUSTED
YEAR.—The term ‘adjusted
year’ means the partnership taxable year to which
the item being adjusted relates.
‘‘(4) RETURN
DUE
DATE.—The term ‘return
due date’ means, with respect to any taxable year,
the date prescribed for filing the partnership return
567
for such taxable year (determined without regard to
extensions).
‘‘(5) ADJUSTMENTS
INVOLVING
CHANGES
IN
CHARACTER.—Under regulations, appropriate ad-
justments in the application of this section shall be
made for purposes of taking into account partner-
ship adjustments which involve a change in the char-
acter of any item of income, gain, loss, or deduction.
‘‘(e) PAYMENTS NONDEDUCTIBLE.—No deduction
shall be allowed under subtitle A for any payment required
to be made by an electing large partnership under this
section.
‘‘PART II—PARTNERSHIP LEVEL ADJUSTMENTS
‘‘Subpart A. Adjustments by Secretary.
‘‘Subpart B. Claims for adjustments by partnership.
‘‘Subpart A—Adjustments by Secretary
‘‘Sec. 6245. Secretarial authority.
‘‘Sec. 6246. Restrictions on partnership adjustments.
‘‘Sec. 6247. Judicial review of partnership adjustment.
‘‘Sec. 6248. Period of limitations for making adjustments.
‘‘SEC. 6245. SECRETARIAL AUTHORITY.
‘‘(a) GENERAL RULE.—The Secretary is authorized
and directed to make adjustments at the partnership level
in any partnership item to the extent necessary to have
such item be treated in the manner required.
‘‘(b) NOTICE OF PARTNERSHIP ADJUSTMENT.—
‘‘(1) IN GENERAL.—If the Secretary determines
that a partnership adjustment is required, the Sec-
568
retary is authorized to send notice of such adjust-
ment to the partnership by certified mail or reg-
istered mail. Such notice shall be sufficient if mailed
to the partnership at its last known address even if
the partnership has terminated its existence.
‘‘(2) FURTHER NOTICES RESTRICTED.—If the
Secretary mails a notice of a partnership adjustment
to any partnership for any partnership taxable year
and the partnership files a petition under section
6247 with respect to such notice, in the absence of
a showing of fraud, malfeasance, or misrepresenta-
tion of a material fact, the Secretary shall not mail
another such notice to such partnership with respect
to such taxable year.
‘‘(3) AUTHORITY
TO
RESCIND
NOTICE
WITH
PARTNERSHIP CONSENT.—The Secretary may, with
the consent of the partnership, rescind any notice of
a partnership adjustment mailed to such partner-
ship. Any notice so rescinded shall not be treated as
a notice of a partnership adjustment, for purposes of
this section, section 6246, and section 6247, and the
taxpayer shall have no right to bring a proceeding
under section 6247 with respect to such notice.
Nothing in this subsection shall affect any suspen-
sion of the running of any period of limitations dur-
569
ing any period during which the rescinded notice
was outstanding.
‘‘SEC. 6246. RESTRICTIONS ON PARTNERSHIP ADJUST-
MENTS.
‘‘(a) GENERAL RULE.—Except as otherwise provided
in this chapter, no adjustment to any partnership item
may be made (and no levy or proceeding in any court for
the collection of any amount resulting from such adjust-
ment may be made, begun or prosecuted) before—
‘‘(1) the close of the 90th day after the day on
which a notice of a partnership adjustment was
mailed to the partnership, and
‘‘(2) if a petition is filed under section 6247
with respect to such notice, the decision of the court
has become final.
‘‘(b) PREMATURE ACTION MAY BE ENJOINED.—
Notwithstanding section 7421(a), any action which vio-
lates subsection (a) may be enjoined in the proper court,
including the Tax Court. The Tax Court shall have no ju-
risdiction to enjoin any action under this subsection unless
a timely petition has been filed under section 6247 and
then only in respect of the adjustments that are the sub-
ject of such petition.
‘‘(c) EXCEPTIONS
TO RESTRICTIONS
ON ADJUST-
MENTS.—
570
‘‘(1) ADJUSTMENTS ARISING OUT OF MATH OR
CLERICAL ERRORS.—
‘‘(A) IN GENERAL.—If the partnership is
notified that, on account of a mathematical or
clerical error appearing on the partnership re-
turn, an adjustment to a partnership item is re-
quired, rules similar to the rules of paragraphs
(1) and (2) of section 6213(b) shall apply to
such adjustment.
‘‘(B) SPECIAL RULE.—If an electing large
partnership is a partner in another electing
large partnership, any adjustment on account of
such partnership’s failure to comply with the
requirements of section 6241(a) with respect to
its interest in such other partnership shall be
treated as an adjustment referred to in sub-
paragraph (A), except that paragraph (2) of
section 6213(b) shall not apply to such adjust-
ment.
‘‘(2) 
PARTNERSHIP
MAY
WAIVE
RESTRIC-
TIONS.—The partnership shall at any time (whether
or not a notice of partnership adjustment has been
issued) have the right, by a signed notice in writing
filed with the Secretary, to waive the restrictions
571
provided in subsection (a) on the making of any
partnership adjustment.
‘‘(d) LIMIT WHERE NO PROCEEDING BEGUN.—If no
proceeding under section 6247 is begun with respect to
any notice of a partnership adjustment during the 90-day
period described in subsection (a), the amount for which
the partnership is liable under section 6242 (and any in-
crease in any partner’s liability for tax under chapter 1
by reason of any adjustment under section 6242(a)) shall
not exceed the amount determined in accordance with such
notice.
‘‘SEC. 6247. JUDICIAL REVIEW OF PARTNERSHIP ADJUST-
MENT.
‘‘(a) GENERAL RULE.—Within 90 days after the date
on which a notice of a partnership adjustment is mailed
to the partnership with respect to any partnership taxable
year, the partnership may file a petition for a readjust-
ment of the partnership items for such taxable year with—
‘‘(1) the Tax Court,
‘‘(2) the district court of the United States for
the district in which the partnership’s principal place
of business is located, or
‘‘(3) the Claims Court.
‘‘(b) JURISDICTIONAL REQUIREMENT FOR BRINGING
ACTION IN DISTRICT COURT OR CLAIMS COURT.—
572
‘‘(1) IN
GENERAL.—A readjustment petition
under this section may be filed in a district court of
the United States or the Claims Court only if the
partnership filing the petition deposits with the Sec-
retary, on or before the date the petition is filed, the
amount for which the partnership would be liable
under section 6242(b) (as of the date of the filing
of the petition) if the partnership items were ad-
justed as provided by the notice of partnership ad-
justment. The court may by order provide that the
jurisdictional requirements of this paragraph are
satisfied where there has been a good faith attempt
to satisfy such requirement and any shortfall of the
amount required to be deposited is timely corrected.
‘‘(2) INTEREST PAYABLE.—Any amount depos-
ited under paragraph (1), while deposited, shall not
be treated as a payment of tax for purposes of this
title (other than chapter 67).
‘‘(c) SCOPE OF JUDICIAL REVIEW.—A court with
which a petition is filed in accordance with this section
shall have jurisdiction to determine all partnership items
of the partnership for the partnership taxable year to
which the notice of partnership adjustment relates and the
proper allocation of such items among the partners (and
the applicability of any penalty, addition to tax, or addi-
573
tional amount for which the partnership may be liable
under section 6242(b)).
‘‘(d) DETERMINATION
OF COURT REVIEWABLE.—
Any determination by a court under this section shall have
the force and effect of a decision of the Tax Court or a
final judgment or decree of the district court or the Claims
Court, as the case may be, and shall be reviewable as such.
The date of any such determination shall be treated as
being the date of the court’s order entering the decision.
‘‘(e) EFFECT OF DECISION DISMISSING ACTION.—If
an action brought under this section is dismissed other
than by reason of a rescission under section 6245(b)(3),
the decision of the court dismissing the action shall be con-
sidered as its decision that the notice of partnership ad-
justment is correct, and an appropriate order shall be en-
tered in the records of the court.
‘‘SEC. 6248. PERIOD OF LIMITATIONS FOR MAKING ADJUST-
MENTS.
‘‘(a) GENERAL RULE.—Except as otherwise provided
in this section, no adjustment under this subpart to any
partnership item for any partnership taxable year may be
made after the date which is 3 years after the later of—
‘‘(1) the date on which the partnership return
for such taxable year was filed, or
574
‘‘(2) the last day for filing such return for such
year (determined without regard to extensions).
‘‘(b) EXTENSION BY AGREEMENT.—The period de-
scribed in subsection (a) (including an extension period
under this subsection) may be extended by an agreement
entered into by the Secretary and the partnership before
the expiration of such period.
‘‘(c) SPECIAL RULE IN CASE OF FRAUD, ETC.—
‘‘(1) FALSE RETURN.—In the case of a false or
fraudulent partnership return with intent to evade
tax, the adjustment may be made at any time.
‘‘(2) SUBSTANTIAL OMISSION OF INCOME.—If
any partnership omits from gross income an amount
properly includible therein which is in excess of 25
percent of the amount of gross income stated in its
return, subsection (a) shall be applied by substitut-
ing ‘6 years’ for ‘3 years’.
‘‘(3) NO RETURN.—In the case of a failure by
a partnership to file a return for any taxable year,
the adjustment may be made at any time.
‘‘(4) RETURN FILED BY SECRETARY.—For pur-
poses of this section, a return executed by the Sec-
retary under subsection (b) of section 6020 on be-
half of the partnership shall not be treated as a re-
turn of the partnership.
575
‘‘(d) SUSPENSION WHEN SECRETARY MAILS NOTICE
OF ADJUSTMENT.—If notice of a partnership adjustment
with respect to any taxable year is mailed to the partner-
ship, the running of the period specified in subsection (a)
(as modified by the other provisions of this section) shall
be suspended—
‘‘(1) for the period during which an action may
be brought under section 6247 (and, if a petition is
filed under section 6247 with respect to such notice,
until the decision of the court becomes final), and
‘‘(2) for 1 year thereafter.
‘‘Subpart B—Claims for Adjustments by Partnership
‘‘Sec. 6251. Administrative adjustment requests.
‘‘Sec. 6252. Judicial review where administrative adjustment re-
quest is not allowed in full.
‘‘SEC. 6251. ADMINISTRATIVE ADJUSTMENT REQUESTS.
‘‘(a) GENERAL RULE.—A partnership may file a re-
quest for an administrative adjustment of partnership
items for any partnership taxable year at any time which
is—
‘‘(1) within 3 years after the later of—
‘‘(A) the date on which the partnership re-
turn for such year is filed, or
‘‘(B) the last day for filing the partnership
return for such year (determined without re-
gard to extensions), and
576
‘‘(2) before the mailing to the partnership of a
notice of a partnership adjustment with respect to
such taxable year.
‘‘(b) SECRETARIAL ACTION.—If a partnership files
an administrative adjustment request under subsection
(a), the Secretary may allow any part of the requested
adjustments.
‘‘(c) SPECIAL RULE IN CASE OF EXTENSION UNDER
SECTION
6248.—If the period described in section
6248(a) is extended pursuant to an agreement under sec-
tion 6248(b), the period prescribed by subsection (a)(1)
shall not expire before the date 6 months after the expira-
tion of the extension under section 6248(b).
‘‘SEC. 6252. JUDICIAL REVIEW WHERE ADMINISTRATIVE AD-
JUSTMENT REQUEST IS NOT ALLOWED IN
FULL.
‘‘(a) IN GENERAL.—If any part of an administrative
adjustment request filed under section 6251 is not allowed
by the Secretary, the partnership may file a petition for
an adjustment with respect to the partnership items to
which such part of the request relates with—
‘‘(1) the Tax Court,
‘‘(2) the district court of the United States for
the district in which the principal place of business
of the partnership is located, or
577
‘‘(3) the Claims Court.
‘‘(b) PERIOD FOR FILING PETITION.—A petition may
be filed under subsection (a) with respect to partnership
items for a partnership taxable year only—
‘‘(1) after the expiration of 6 months from the
date of filing of the request under section 6251, and
‘‘(2) before the date which is 2 years after the
date of such request.
The 2-year period set forth in paragraph (2) shall be ex-
tended for such period as may be agreed upon in writing
by the partnership and the Secretary.
‘‘(c) COORDINATION WITH SUBPART A.—
‘‘(1) NOTICE
OF
PARTNERSHIP
ADJUSTMENT
BEFORE FILING OF PETITION.—No petition may be
filed under this section after the Secretary mails to
the partnership a notice of a partnership adjustment
for the partnership taxable year to which the request
under section 6251 relates.
‘‘(2) NOTICE
OF
PARTNERSHIP
ADJUSTMENT
AFTER
FILING
BUT
BEFORE
HEARING
OF
PETI-
TION.—If the Secretary mails to the partnership a
notice of a partnership adjustment for the partner-
ship taxable year to which the request under section
6251 relates after the filing of a petition under this
subsection but before the hearing of such petition,
578
such petition shall be treated as an action brought
under section 6247 with respect to such notice, ex-
cept that subsection (b) of section 6247 shall not
apply.
‘‘(3) NOTICE MUST BE BEFORE EXPIRATION OF
STATUTE OF LIMITATIONS.—A notice of a partner-
ship adjustment for the partnership taxable year
shall be taken into account under paragraphs (1)
and (2) only if such notice is mailed before the expi-
ration of the period prescribed by section 6248 for
making adjustments to partnership items for such
taxable year.
‘‘(d) SCOPE OF JUDICIAL REVIEW.—Except in the
case described in paragraph (2) of subsection (c), a court
with which a petition is filed in accordance with this sec-
tion shall have jurisdiction to determine only those part-
nership items to which the part of the request under sec-
tion 6251 not allowed by the Secretary relates and those
items with respect to which the Secretary asserts adjust-
ments as offsets to the adjustments requested by the part-
nership.
‘‘(e) DETERMINATION
OF COURT REVIEWABLE.—
Any determination by a court under this subsection shall
have the force and effect of a decision of the Tax Court
or a final judgment or decree of the district court or the
579
Claims Court, as the case may be, and shall be reviewable
as such. The date of any such determination shall be treat-
ed as being the date of the court’s order entering the deci-
sion.
‘‘PART III—DEFINITIONS AND SPECIAL RULES
‘‘Sec. 6255. Definitions and special rules.
‘‘SEC. 6255. DEFINITIONS AND SPECIAL RULES.
‘‘(a) DEFINITIONS.—For purposes of this sub-
chapter—
‘‘(1) ELECTING
LARGE
PARTNERSHIP.—The
term ‘electing large partnership’ has the meaning
given to such term by section 775.
‘‘(2) PARTNERSHIP ITEM.—The term ‘partner-
ship item’ has the meaning given to such term by
section 6231(a)(3).
‘‘(b) PARTNERS BOUND BY ACTIONS OF PARTNER-
SHIP, ETC.—
‘‘(1) DESIGNATION OF PARTNER.—Each elect-
ing large partnership shall designate (in the manner
prescribed by the Secretary) a partner (or other per-
son) who shall have the sole authority to act on be-
half of such partnership under this subchapter. In
any case in which such a designation is not in effect,
the Secretary may select any partner as the partner
with such authority.
580
‘‘(2) BINDING EFFECT.—An electing large part-
nership and all partners of such partnership shall be
bound—
‘‘(A) by actions taken under this sub-
chapter by the partnership, and
‘‘(B) by any decision in a proceeding
brought under this subchapter.
‘‘(c) PARTNERSHIPS HAVING PRINCIPAL PLACE OF
BUSINESS OUTSIDE THE UNITED STATES.—For purposes
of sections 6247 and 6252, a principal place of business
located outside the United States shall be treated as lo-
cated in the District of Columbia.
‘‘(d) TREATMENT WHERE PARTNERSHIP CEASES TO
EXIST.—If a partnership ceases to exist before a partner-
ship adjustment under this subchapter takes effect, such
adjustment shall be taken into account by the former part-
ners of such partnership under regulations prescribed by
the Secretary.
‘‘(e) DATE DECISION BECOMES FINAL.—For pur-
poses of this subchapter, the principles of section 7481(a)
shall be applied in determining the date on which a deci-
sion of a district court or the Claims Court becomes final.
‘‘(f) PARTNERSHIPS IN CASES UNDER TITLE 11 OF
THE UNITED STATES CODE.—The running of any period
of limitations provided in this subchapter on making a
581
partnership adjustment (or provided by section 6501 or
6502 on the assessment or collection of any amount re-
quired to be paid under section 6242) shall, in a case
under title 11 of the United States Code, be suspended
during the period during which the Secretary is prohibited
by reason of such case from making the adjustment (or
assessment or collection) and—
‘‘(1) for adjustment or assessment, 60 days
thereafter, and
‘‘(2) for collection, 6 months thereafter.
‘‘(g) REGULATIONS.—The Secretary shall prescribe
such regulations as may be necessary to carry out the pro-
visions of this subchapter, including regulations—
‘‘(1) to prevent abuse through manipulation of
the provisions of this subchapter, and
‘‘(2) providing that this subchapter shall not
apply to any case described in section 6231(c)(1) (or
the regulations prescribed thereunder) where the ap-
plication of this subchapter to such a case would
interfere with the effective and efficient enforcement
of this title.
In any case to which this subchapter does not apply by
reason of paragraph (2), rules similar to the rules of sec-
tions 6229(f) and 6255(f) shall apply.’’.
582
(b) CLERICAL AMENDMENT.—The table of sub-
chapters for chapter 63 is amended by adding at the end
thereof the following new item:
‘‘Subchapter D. Treatment of electing large partnerships.’’.
SEC. 1223. DUE DATE FOR FURNISHING INFORMATION TO
PARTNERS OF ELECTING LARGE PARTNER-
SHIPS.
(a) GENERAL RULE.—Subsection (b) of section 6031
(relating to copies to partners) is amended by adding at
the end the following new sentence: ‘‘In the case of an
electing large partnership (as defined in section 775), such
information shall be furnished on or before the first March
15 following the close of such taxable year.’’.
(b) TREATMENT AS INFORMATION RETURN.—Sec-
tion 6724 is amended by adding at the end the following
new subsection:
‘‘(e) SPECIAL RULE FOR CERTAIN PARTNERSHIP RE-
TURNS.—If any partnership return under section 6031(a)
is required under section 6011(e) to be filed on magnetic
media or in other machine-readable form, for purposes of
this part, each schedule required to be included with such
return with respect to each partner shall be treated as a
separate information return.’’.
583
SEC. 1224. RETURNS MAY BE REQUIRED ON MAGNETIC
MEDIA.
Paragraph (2) of section 6011(e) (relating to returns
on magnetic media) is amended by adding at the end
thereof the following new sentence:
‘‘Notwithstanding the preceding sentence, the Sec-
retary shall require partnerships having more than
100 partners to file returns on magnetic media.’’.
SEC. 1225. TREATMENT OF PARTNERSHIP ITEMS OF INDI-
VIDUAL RETIREMENT ACCOUNTS.
Subsection (b) of section 6012 is amended by adding
at the end thereof the following new paragraph:
‘‘(6) IRA SHARE OF PARTNERSHIP INCOME.—
In the case of a trust which is exempt from taxation
under section 408(e), for purposes of this section,
the trust’s distributive share of items of gross in-
come and gain of any partnership to which sub-
chapter C or D of chapter 63 applies shall be treat-
ed as equal to the trust’s distributive share of the
taxable income of such partnership.’’.
SEC. 1226. EFFECTIVE DATE.
The amendments made by this part shall apply to
partnership taxable years ending on or after December 31,
1997.
584
PART II—PROVISIONS RELATED TO TEFRA
PARTNERSHIP PROCEEDINGS
SEC. 1231. TREATMENT OF PARTNERSHIP ITEMS IN DEFI-
CIENCY PROCEEDINGS.
(a) IN GENERAL.—Subchapter C of chapter 63 is
amended by adding at the end the following new section:
‘‘SEC. 
6234. 
DECLARATORY 
JUDGMENT 
RELATING 
TO
TREATMENT OF ITEMS OTHER THAN PART-
NERSHIP ITEMS WITH RESPECT TO AN OVER-
SHELTERED RETURN.
‘‘(a) GENERAL RULE.—If—
‘‘(1) a taxpayer files an oversheltered return for
a taxable year,
‘‘(2) the Secretary makes a determination with
respect to the treatment of items (other than part-
nership items) of such taxpayer for such taxable
year, and
‘‘(3) the adjustments resulting from such deter-
mination do not give rise to a deficiency (as defined
in section 6211) but would give rise to a deficiency
if there were no net loss from partnership items,
the Secretary is authorized to send a notice of adjustment
reflecting such determination to the taxpayer by certified
or registered mail.
585
‘‘(b) OVERSHELTERED RETURN.—For purposes of
this section, the term ‘oversheltered return’ means an in-
come tax return which—
‘‘(1) shows no taxable income for the taxable
year, and
‘‘(2) shows a net loss from partnership items.
‘‘(c) JUDICIAL REVIEW IN THE TAX COURT.—Within
90 days, or 150 days if the notice is addressed to a person
outside the United States, after the day on which the no-
tice of adjustment authorized in subsection (a) is mailed
to the taxpayer, the taxpayer may file a petition with the
Tax Court for redetermination of the adjustments. Upon
the filing of such a petition, the Tax Court shall have ju-
risdiction to make a declaration with respect to all items
(other than partnership items and affected items which
require partner level determinations as described in sec-
tion 6230(a)(2)(A)(i)) for the taxable year to which the
notice of adjustment relates, in accordance with the prin-
ciples of section 6214(a). Any such declaration shall have
the force and effect of a decision of the Tax Court and
shall be reviewable as such.
‘‘(d) FAILURE TO FILE PETITION.—
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), if the taxpayer does not file a petition
with the Tax Court within the time prescribed in
586
subsection (c), the determination of the Secretary
set forth in the notice of adjustment that was mailed
to the taxpayer shall be deemed to be correct.
‘‘(2) EXCEPTION.—Paragraph (1) shall not
apply after the date that the taxpayer—
‘‘(A) files a petition with the Tax Court
within the time prescribed in subsection (c)
with respect to a subsequent notice of adjust-
ment relating to the same taxable year, or
‘‘(B) files a claim for refund of an overpay-
ment of tax under section 6511 for the taxable
year involved.
If a claim for refund is filed by the taxpayer, then
solely for purposes of determining (for the taxable
year involved) the amount of any computational ad-
justment in connection with a partnership proceed-
ing under this subchapter (other than under this
section) or the amount of any deficiency attributable
to affected items in a proceeding under section
6230(a)(2), the items that are the subject of the no-
tice of adjustment shall be presumed to have been
correctly reported on the taxpayer’s return during
the pendency of the refund claim (and, if within the
time prescribed by section 6532 the taxpayer com-
mences a civil action for refund under section 7422,