106 
striking the item relating to such part in the table of 
parts for such subchapter). 
(2) ASSESSMENT RULES RELATING TO ELECTING 
LARGE PARTNERSHIPS.—Chapter 63 of such Code is 
amended by striking subchapter D (and by striking 
the item relating to such subchapter in the table of 
subchapters for such chapter). 
(c) PARTNERSHIP AUDIT REFORM.— 
(1) IN GENERAL.—Chapter 63 of such Code, as 
amended by the preceding provisions of this section, 
is amended by inserting after subchapter B the fol-
lowing new subchapter: 
‘‘Subchapter C—Treatment of Partnerships 
‘‘PART I—IN GENERAL 
‘‘PART II—PARTNERSHIP ADJUSTMENTS 
‘‘PART III—PROCEDURE 
‘‘PART IV—DEFINITIONS AND SPECIAL RULES 
‘‘PART I—IN GENERAL 
‘‘Sec. 6221. Determination at partnership level. 
‘‘Sec. 6222. Partner’s return must be consistent with partnership return. 
‘‘Sec. 6223. Designation of partnership representative. 
‘‘SEC. 6221. DETERMINATION AT PARTNERSHIP LEVEL. 
‘‘(a) IN GENERAL.—Any adjustment to items of in-
come, gain, loss, deduction, or credit of a partnership for 
a partnership taxable year (and any partner’s distributive 
share thereof) shall be determined, any tax attributable 
thereto shall be assessed and collected, and the applicability
107 
of any penalty, addition to tax, or additional amount 
which relates to an adjustment to any such item or share 
shall be determined, at the partnership level pursuant to 
this subchapter. 
‘‘(b) ELECTION OUT
FOR CERTAIN PARTNERSHIPS 
WITH 100 OR FEWER PARTNERS, ETC.— 
‘‘(1) IN
GENERAL.—This subchapter shall not 
apply with respect to any partnership for any taxable 
year if— 
‘‘(A) the partnership elects the application 
of this subsection for such taxable year, 
‘‘(B) for such taxable year the partnership 
is required to furnish 100 or fewer statements 
under section 6031(b) with respect to its part-
ners, 
‘‘(C) each of the partners of such partner-
ship is an individual, a C corporation, any for-
eign entity that would be treated as a C corpora-
tion were it domestic, an S corporation, or an 
estate of a deceased partner, 
‘‘(D) the election— 
‘‘(i) is made with a timely filed return 
for such taxable year, and 
‘‘(ii) includes (in the manner pre-
scribed by the Secretary) a disclosure of the
108 
name and taxpayer identification number 
of each partner of such partnership, and 
‘‘(E) the partnership notifies each such 
partner of such election in the manner prescribed 
by the Secretary. 
‘‘(2) SPECIAL
RULES
RELATING
TO
CERTAIN 
PARTNERS.— 
‘‘(A) S CORPORATION
PARTNERS.—In the 
case of a partner that is an S corporation— 
‘‘(i) the partnership shall only be treat-
ed as meeting the requirements of para-
graph (1)(C) with respect to such partner if 
such partnership includes (in the manner 
prescribed by the Secretary) a disclosure of 
the name and taxpayer identification num-
ber of each person with respect to whom 
such S corporation is required to furnish a 
statement under section 6037(b) for the tax-
able year of the S corporation ending with 
or within the partnership taxable year for 
which the application of this subsection is 
elected, and 
‘‘(ii) the statements such S corporation 
is required to so furnish shall be treated as
109 
statements furnished by the partnership for 
purposes of paragraph (1)(B). 
‘‘(B) FOREIGN PARTNERS.—For purposes of 
paragraph (1)(D)(ii), the Secretary may provide 
for alternative identification of any foreign part-
ners. 
‘‘(C) OTHER
PARTNERS.—The Secretary 
may by regulation or other guidance prescribe 
rules similar to the rules of subparagraph (A) 
with respect to any partners not described in 
such subparagraph or paragraph (1)(C). 
‘‘SEC. 6222. PARTNER’S RETURN MUST BE CONSISTENT 
WITH PARTNERSHIP RETURN. 
‘‘(a) IN GENERAL.—A partner shall, on the partner’s 
return, treat each item of income, gain, loss, deduction, or 
credit attributable to a partnership in a manner which is 
consistent with the treatment of such income, gain, loss, de-
duction, or credit on the partnership return. 
‘‘(b) UNDERPAYMENT DUE TO INCONSISTENT TREAT-
MENT ASSESSED AS MATH ERROR.—Any underpayment 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 ac-
count of a mathematical or clerical error appearing on the 
partner’s return. Paragraph (2) of section 6213(b) shall not
110 
apply to any assessment of an underpayment referred to 
in the preceding sentence. 
‘‘(c) EXCEPTION FOR NOTIFICATION OF INCONSISTENT 
TREATMENT.— 
‘‘(1) IN GENERAL.—In the case of any item re-
ferred to in subsection (a), if— 
‘‘(A)(i) the partnership has filed a return 
but the partner’s treatment on the partner’s re-
turn is (or may be) inconsistent with the treat-
ment of the item on the partnership return, or 
‘‘(ii) the partnership has not filed a return, 
and 
‘‘(B) the partner files with the Secretary a 
statement identifying the inconsistency, 
subsections (a) and (b) shall not apply to such item. 
‘‘(2) PARTNER RECEIVING INCORRECT INFORMA-
TION.—A partner shall be treated as having complied 
with subparagraph (B) of paragraph (1) with respect 
to an item if the partner— 
‘‘(A) demonstrates to the satisfaction of the 
Secretary that the treatment of the item on the 
partner’s return is consistent with the treatment 
of the item on the statement furnished to the 
partner by the partnership, and
111 
‘‘(B) elects to have this paragraph apply 
with respect to that item. 
‘‘(d) FINAL DECISION ON CERTAIN POSITIONS NOT 
BINDING ON PARTNERSHIP.—Any final decision with re-
spect to an inconsistent position identified under subsection 
(c) in a proceeding to which the partnership is not a party 
shall not be binding on the partnership. 
‘‘(e) ADDITION TO TAX FOR FAILURE TO COMPLY 
WITH SECTION.—For addition to tax in the case of a part-
ner’s disregard of the requirements of this section, see part 
II of subchapter A of chapter 68. 
‘‘SEC. 6223. PARTNERS BOUND BY ACTIONS OF PARTNER-
SHIP. 
‘‘(a) DESIGNATION OF PARTNERSHIP REPRESENTA-
TIVE.—Each partnership shall designate (in the manner 
prescribed by the Secretary) a partner (or other person) 
with a substantial presence in the United States as the 
partnership representative who shall have the sole authority 
to act on behalf of the partnership under this subchapter. 
In any case in which such a designation is not in effect, 
the Secretary may select any person as the partnership rep-
resentative. 
‘‘(b) BINDING EFFECT.—A partnership and all part-
ners of such partnership shall be bound—
112 
‘‘(1) by actions taken under this subchapter by 
the partnership, and 
‘‘(2) by any final decision in a proceeding 
brought under this subchapter with respect to the 
partnership. 
‘‘PART II—PARTNERSHIP ADJUSTMENTS 
‘‘Sec. 6225. Partnership adjustment by Secretary. 
‘‘Sec. 6226. Alternative to payment of imputed underpayment by partnership. 
‘‘Sec. 6227. Administrative adjustment request by partnership. 
‘‘SEC. 6225. PARTNERSHIP ADJUSTMENT BY SECRETARY. 
‘‘(a) IN GENERAL.—In the case of any adjustment by 
the Secretary in the amount of any item of income, gain, 
loss, deduction, or credit of a partnership, or any partner’s 
distributive share thereof— 
‘‘(1) the partnership shall pay any imputed un-
derpayment with respect to such adjustment in the 
adjustment year as provided in section 6232, and 
‘‘(2) any adjustment that does not result in an 
imputed underpayment shall be taken into account by 
the partnership in the adjustment year— 
‘‘(A) except as provided in subparagraph 
(B), as a reduction in non-separately stated in-
come or an increase in non-separately stated loss 
(whichever 
is 
appropriate) 
under 
section 
702(a)(8), or 
‘‘(B) in the case of an item of credit, as a 
separately stated item.
113 
‘‘(b) 
DETERMINATION
OF
IMPUTED
UNDERPAY-
MENTS.—For purposes of this subchapter— 
‘‘(1) IN GENERAL.—Except as provided in sub-
section (c), any imputed underpayment with respect 
to any partnership adjustment for any reviewed year 
shall be determined— 
‘‘(A) by netting all adjustments of items of 
income, gain, loss, or deduction and multiplying 
such net amount by the highest rate of tax in ef-
fect for the reviewed year under section 1 or 11, 
‘‘(B) by treating any net increase or de-
crease in loss under subparagraph (A) as a de-
crease or increase, respectively, in income, and 
‘‘(C) by taking into account any adjust-
ments to items of credit as an increase or de-
crease, as the case may be, in the amount deter-
mined under subparagraph (A). 
‘‘(2) ADJUSTMENTS
TO
DISTRIBUTIVE
SHARES 
OF PARTNERS NOT NETTED.—In the case of any ad-
justment which reallocates the distributive share of 
any item from one partner to another, such adjust-
ment shall be taken into account under paragraph (1) 
by disregarding— 
‘‘(A) any decrease in any item of income or 
gain, and
114 
‘‘(B) any increase in any item of deduction, 
loss, or credit. 
‘‘(c) MODIFICATION OF IMPUTED UNDERPAYMENTS.— 
‘‘(1) IN GENERAL.—The Secretary shall establish 
procedures under which the imputed underpayment 
amount may be modified consistent with the require-
ments of this subsection. 
‘‘(2) AMENDED RETURNS OF PARTNERS.— 
‘‘(A) IN GENERAL.—Such procedures shall 
provide that if— 
‘‘(i) one or more partners file returns 
(notwithstanding section 6511) for the tax-
able year of the partners which includes the 
end of the reviewed year of the partnership, 
‘‘(ii) such returns take into account all 
adjustments under subsection (a) properly 
allocable to such partners (and for any 
other taxable year with respect to which 
any tax attribute is affected by reason of 
such adjustments), and 
‘‘(iii) payment of any tax due is in-
cluded with such return, 
then the imputed underpayment amount shall be 
determined without regard to the portion of the 
adjustments so taken into account.
115 
‘‘(B) 
REALLOCATION
OF
DISTRIBUTIVE 
SHARE.—In the case of any adjustment which 
reallocates the distributive share of any item 
from one partner to another, paragraph (2) shall 
apply only if returns are filed by all partners af-
fected by such adjustment. 
‘‘(3) TAX-EXEMPT PARTNERS.—Such procedures 
shall provide for determining the imputed under-
payment without regard to the portion thereof that 
the partnership demonstrates is allocable to a partner 
that would not owe tax by reason of its status as a 
tax-exempt entity (as defined in section 168(h)(2)). 
‘‘(4) MODIFICATION
OF
APPLICABLE
HIGHEST 
TAX RATES.— 
‘‘(A) IN GENERAL.—Such procedures shall 
provide for taking into account a rate of tax 
lower than the rate of tax described in subsection 
(b)(1)(A) with respect to any portion of the im-
puted underpayment that the partnership dem-
onstrates is allocable to a partner which— 
‘‘(i) in the case of ordinary income, is 
a C corporation, or 
‘‘(ii) in the case of a capital gain or 
qualified dividend, is an individual.
116 
In no event shall the lower rate determined 
under the preceding sentence be less than the 
highest rate in effect with respect to the income 
and taxpayer described in clause (i) or clause 
(ii), as the case may be. For purposes of clause 
(ii), an S corporation shall be treated as an in-
dividual. 
‘‘(B) PORTION OF IMPUTED UNDERPAYMENT 
TO WHICH LOWER RATE APPLIES.— 
‘‘(i) IN GENERAL.—Except as provided 
in clause (ii), the portion of the imputed 
underpayment to which the lower rate ap-
plies with respect to a partner under sub-
paragraph (A) shall be determined by ref-
erence to the partners’ distributive share of 
items to which the imputed underpayment 
relates. 
‘‘(ii) RULE IN CASE OF VARIED TREAT-
MENT OF ITEMS AMONG PARTNERS.—If the 
imputed underpayment is attributable to 
the adjustment of more than 1 item, and 
any partner’s distributive share of such 
items is not the same with respect to all 
such items, then the portion of the imputed 
underpayment to which the lower rate ap-
117 
plies with respect to a partner under sub-
paragraph (A) shall be determined by ref-
erence to the amount which would have been 
the partner’s distributive share of net gain 
or loss if the partnership had sold all of its 
assets at their fair market value as of the 
close of the reviewed year of the partnership. 
‘‘(5) OTHER PROCEDURES FOR MODIFICATION OF 
IMPUTED
UNDERPAYMENT.—The Secretary may by 
regulations or guidance provide for additional proce-
dures to modify imputed underpayment amounts on 
the basis of such other factors as the Secretary deter-
mines are necessary or appropriate to carry out the 
purposes of this subsection. 
‘‘(6) YEAR AND DAY FOR SUBMISSION TO SEC-
RETARY.—Anything required to be submitted pursu-
ant to paragraph (1) shall be submitted to the Sec-
retary not later than the close of the 270-day period 
beginning on the date on which the notice of a pro-
posed partnership adjustment is mailed under section 
6231 unless such period is extended with the consent 
of the Secretary. 
‘‘(7) DECISION OF SECRETARY.—Any modifica-
tion of the imputed underpayment amount under this
118 
subsection shall be made only upon approval of such 
modification by the Secretary. 
‘‘(d) DEFINITIONS.—For purposes of this subchapter— 
‘‘(1) REVIEWED YEAR.—The term ‘reviewed year’ 
means the partnership taxable year to which the item 
being adjusted relates. 
‘‘(2) ADJUSTMENT YEAR.—The term ‘adjustment 
year’ means the partnership taxable year in which— 
‘‘(A) in the case of an adjustment pursuant 
to the decision of a court in a proceeding brought 
under section 6234, such decision becomes final, 
‘‘(B) in the case of an administrative ad-
justment request under section 6227, such ad-
ministrative adjustment request is made, or 
‘‘(C) in any other case, notice of the final 
partnership adjustment is mailed under section 
6231. 
‘‘SEC. 6226. ALTERNATIVE TO PAYMENT OF IMPUTED UN-
DERPAYMENT BY PARTNERSHIP. 
‘‘(a) IN GENERAL.—If the partnership— 
‘‘(1) not later than 45 days after the date of the 
notice of final partnership adjustment, elects the ap-
plication of this section with respect to an imputed 
underpayment, and
119 
‘‘(2) at such time and in such manner as the 
Secretary may provide, furnishes to each partner of 
the partnership for the reviewed year and to the Sec-
retary a statement of the partner’s share of any ad-
justment to income, gain, loss, deduction, or credit (as 
determined in the notice of final partnership adjust-
ment), 
section 6225 shall not apply with respect to such under-
payment and each such partner shall take such adjustment 
into account as provided in subsection (b). The election 
under paragraph (1) shall be made in such manner as the 
Secretary may provide and, once made, shall be revocable 
only with the consent of the Secretary. 
‘‘(b) ADJUSTMENTS TAKEN INTO ACCOUNT BY PART-
NER.— 
‘‘(1) TAX IMPOSED IN YEAR OF STATEMENT.— 
Each partner’s tax imposed by chapter 1 for the tax-
able year which includes the date the statement was 
furnished under subsection (a) shall be increased by 
the aggregate of the adjustment amounts determined 
under paragraph (2) for the taxable years referred to 
therein. 
‘‘(2) ADJUSTMENT
AMOUNTS.—The adjustment 
amounts determined under this paragraph are—
120 
‘‘(A) in the case of the taxable year of the 
partner which includes the end of the reviewed 
year, the amount by which the tax imposed 
under chapter 1 would increase if the partner’s 
share of the adjustments described in subsection 
(a) were taken into account for such taxable 
year, plus 
‘‘(B) in the case of any taxable year after 
the taxable year referred to in subparagraph (A) 
and before the taxable year referred to in para-
graph (1), the amount by which the tax imposed 
under chapter 1 would increase by reason of the 
adjustment to tax attributes under paragraph 
(3). 
‘‘(3) ADJUSTMENT
OF
TAX
ATTRIBUTES.—Any 
tax attribute which would have been affected if the ad-
justments described in subsection (a) were taken into 
account for the taxable year referred to in paragraph 
(2)(A) shall— 
‘‘(A) in the case of any taxable year referred 
to in paragraph (2)(B), be appropriately ad-
justed for purposes of applying such paragraph, 
and 
‘‘(B) in the case of any subsequent taxable 
year, be appropriately adjusted.
121 
‘‘(c) PENALTIES AND INTEREST.— 
‘‘(1) PENALTIES.—Notwithstanding subsections 
(a) and (b), any penalties, additions to tax, or addi-
tional amount shall be determined as provided under 
section 6221 and the partners of the partnership for 
the reviewed year shall be liable for any such penalty, 
addition to tax, or additional amount. 
‘‘(2) INTEREST.—In the case of an imputed un-
derpayment with respect to which the application of 
this section is elected, interest shall be determined— 
‘‘(A) at the partner level, 
‘‘(B) from the due date of the return for the 
taxable year to which the increase is attributable 
(determined by taking into account any in-
creases attributable to a change in tax attributes 
for a taxable year under subsection (b)(2)), and 
‘‘(C) at the underpayment rate under sec-
tion 6621(a)(2), determined by substituting ‘5 
percentage points’ for ‘3 percentage points’ in 
subparagraph (B) thereof. 
‘‘SEC. 6227. ADMINISTRATIVE ADJUSTMENT REQUEST BY 
PARTNERSHIP. 
‘‘(a) IN GENERAL.—A partnership may file a request 
for an administrative adjustment in the amount of one or
122 
more items of income, gain, loss, deduction, or credit of the 
partnership for any partnership taxable year. 
‘‘(b) ADJUSTMENT.—Any such adjustment under sub-
section (a) shall be determined and taken into account for 
the partnership taxable year in which the administrative 
adjustment request is made— 
‘‘(1) by the partnership under rules similar to 
the rules of section 6225 (other than paragraphs (2), 
(6) and (7) of subsection (c) thereof) for the partner-
ship taxable year in which the administrative adjust-
ment request is made, or 
‘‘(2) by the partnership and partners under rules 
similar to the rules of section 6226 (determined with-
out regard to the substitution described in subsection 
(c)(2)(C) thereof). 
In the case of an adjustment that would not result in an 
imputed underpayment, paragraph (1) shall not apply and 
paragraph (2) shall apply with appropriate adjustments. 
‘‘(c) PERIOD OF LIMITATIONS.—A partnership may 
not file such a request more than 3 years after the later 
of— 
‘‘(1) the date on which the partnership return for 
such year is filed, or
123 
‘‘(2) the last day for filing the partnership re-
turn for such year (determined without regard to ex-
tensions). 
In no event may a partnership file such a request after a 
notice of an administrative proceeding with respect to the 
taxable year is mailed under section 6231. 
‘‘PART 1—PROCEDURE 
‘‘Sec. 6231. Notice of proceedings and adjustment. 
‘‘Sec. 6232. Assessment, collection, and payment. 
‘‘Sec. 6233. Interest and penalties. 
‘‘Sec. 6234. Judicial review of partnership adjustment. 
‘‘Sec. 6235. Period of limitations on making adjustments. 
‘‘SEC. 6231. NOTICE OF PROCEEDINGS AND ADJUSTMENT. 
‘‘(a) IN GENERAL.—The Secretary shall mail to the 
partnership and the partnership representative— 
‘‘(1) notice of any administrative proceeding ini-
tiated at the partnership level with respect to an ad-
justment of any item of income, gain, loss, deduction, 
or credit of a partnership for a partnership taxable 
year, or any partner’s distributive share thereof, 
‘‘(2) notice of any proposed partnership adjust-
ment resulting from such proceeding, and 
‘‘(3) notice of any final partnership adjustment 
resulting from such proceeding. 
Any notice of a final partnership adjustment shall not be 
mailed earlier than 270 days after the date on which the 
notice of the proposed partnership adjustment is mailed. 
Such notices shall be sufficient if mailed to the last known
124 
address of the partnership representative or the partnership 
(even if the partnership has terminated its existence). The 
first sentence shall apply to any proceeding with respect 
to an administrative adjustment request filed by a partner-
ship under section 6227. 
‘‘(b) FURTHER NOTICES RESTRICTED.—If the Sec-
retary mails a notice of a final partnership adjustment to 
any partnership for any partnership taxable year and the 
partnership files a petition under section 6234 with respect 
to such notice, in the absence of a showing of fraud, malfea-
sance, or misrepresentation of a material fact, the Secretary 
shall not mail another such notice to such partnership with 
respect to such taxable year. 
‘‘(c) AUTHORITY TO RESCIND NOTICE WITH PARTNER-
SHIP CONSENT.—The Secretary may, with the consent of 
the partnership, rescind any notice of a partnership adjust-
ment mailed to such partnership. Any notice so rescinded 
shall not be treated as a notice of a partnership adjustment 
for purposes of this subchapter, and the taxpayer shall have 
no right to bring a proceeding under section 6234 with re-
spect to such notice. 
‘‘SEC. 6232. ASSESSMENT, COLLECTION, AND PAYMENT. 
‘‘(a) IN GENERAL.—Any imputed underpayment shall 
be assessed and collected in the same manner as if it were 
a tax imposed for the adjustment year by subtitle A, except
125 
that in the case of an administrative adjustment request 
to which section 6227(b)(1) applies, the underpayment shall 
be paid when the request is filed. 
‘‘(b) LIMITATION ON ASSESSMENT.—Except as other-
wise provided in this chapter, no assessment of a deficiency 
may be made (and no levy or proceeding in any court for 
the collection of any amount resulting from such adjustment 
may be made, begun or prosecuted) before— 
‘‘(1) the close of the 90th day after the day on 
which a notice of a final partnership adjustment was 
mailed, and 
‘‘(2) if a petition is filed under section 6234 
with respect to such notice, the decision of the court 
has become final. 
‘‘(c) PREMATURE ACTION MAY BE ENJOINED.—Not-
withstanding section 7421(a), any action which violates 
subsection (b) may be enjoined in the proper court, includ-
ing the Tax Court. The Tax Court shall have no jurisdiction 
to enjoin any action under this subsection unless a timely 
petition has been filed under section 6234 and then only 
in respect of the adjustments that are the subject of such 
petition. 
‘‘(d) EXCEPTIONS
TO RESTRICTIONS
ON ADJUST-
MENTS.—
126 
‘‘(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 item is required, rules 
similar to the rules of paragraphs (1) and (2) of 
section 6213(b) shall apply to such adjustment. 
‘‘(B) SPECIAL RULE.—If a partnership is a 
partner in another partnership, any adjustment 
on account of such partnership’s failure to com-
ply with the requirements of section 6222(a) 
with respect to its interest in such other partner-
ship shall be treated as an adjustment referred to 
in subparagraph (A), except that paragraph (2) 
of section 6213(b) shall not apply to such adjust-
ment. 
‘‘(2) PARTNERSHIP MAY WAIVE RESTRICTIONS.— 
The partnership may at any time (whether or not 
any notice of partnership adjustment has been 
issued), by a signed notice in writing filed with the 
Secretary, waive the restrictions provided in sub-
section (b) on the making of any partnership adjust-
ment.
127 
‘‘(e) LIMIT WHERE NO PROCEEDING BEGUN.—If no 
proceeding under section 6234 is begun with respect to any 
notice of a final partnership adjustment during the 90-day 
period described in subsection (b) thereof, the amount for 
which the partnership is liable under section 6225 shall not 
exceed the amount determined in accordance with such no-
tice. 
‘‘SEC. 6233. INTEREST AND PENALTIES. 
‘‘(a) INTEREST AND PENALTIES DETERMINED FROM 
REVIEWED YEAR.— 
‘‘(1) IN GENERAL.—Except to the extent provided 
in section 6226(c), in the case of a partnership ad-
justment for a reviewed year— 
‘‘(A) interest shall be computed under para-
graph (2), and 
‘‘(B) the partnership shall be liable for any 
penalty, addition 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 
for the period beginning on the day after the return 
due date for the reviewed year and ending on the re-
turn due date for the adjustment year (or, if earlier,
128 
the date payment of the imputed underpayment 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 
reviewed year and before the adjustment year by rea-
son of such partnership adjustment. 
‘‘(3) PENALTIES.—Any penalty, addition to tax, 
or additional amount shall be determined at the part-
nership level as if such partnership had been an indi-
vidual subject to tax under chapter 1 for the reviewed 
year and the imputed underpayment were an actual 
underpayment (or understatement) for such year. 
‘‘(b) INTEREST AND PENALTIES WITH RESPECT TO 
ADJUSTMENT YEAR RETURN.— 
‘‘(1) IN GENERAL.—In the case of any failure to 
pay an imputed underpayment on the date prescribed 
therefor, the partnership shall be liable— 
‘‘(A) for interest as determined under para-
graph (2), and 
‘‘(B) for any penalty, addition to tax, or 
additional amount as determined under para-
graph (3). 
‘‘(2) INTEREST.—Interest determined under this 
paragraph is the interest that would be determined by
129 
treating the imputed underpayment as an under-
payment of tax imposed in the adjustment year. 
‘‘(3) PENALTIES.—Penalties, additions to tax, or 
additional amounts determined under this paragraph 
are the penalties, additions to tax, or additional 
amounts that would be determined— 
‘‘(A) by applying section 6651(a)(2) to such 
failure to pay, and 
‘‘(B) by treating the imputed underpayment 
as an underpayment of tax for purposes of part 
II of subchapter A of chapter 68. 
‘‘SEC. 6234. JUDICIAL REVIEW OF PARTNERSHIP ADJUST-
MENT. 
‘‘(a) IN GENERAL.—Within 90 days after the date on 
which a notice of a final partnership adjustment is mailed 
under section 6231 with respect to any partnership taxable 
year, the partnership may file a petition for a readjustment 
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.—
130 
‘‘(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 of the imputed underpayment (as of the date 
of the filing of the petition) if the partnership adjust-
ment was made as provided by the notice of final 
partnership adjustment. The court may by order pro-
vide that the jurisdictional requirements of this para-
graph 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 cor-
rected. 
‘‘(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 items of income, 
gain, loss, deduction, or credit of the partnership for the 
partnership taxable year to which the notice of final part-
nership adjustment relates, the proper allocation of such 
items among the partners, and the applicability of any pen-
131 
alty, addition to tax, or additional amount for which the 
partnership may be liable under this subchapter. 
‘‘(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 6231(c), the decision 
of the court dismissing the action shall be considered as its 
decision that the notice of final partnership adjustment is 
correct, and an appropriate order shall be entered in the 
records of the court. 
‘‘SEC. 6235. PERIOD OF LIMITATIONS ON MAKING ADJUST-
MENTS. 
‘‘(a) IN GENERAL.—Except as otherwise provided in 
this section, no adjustment under this subpart for any part-
nership taxable year may be made after the later of— 
‘‘(1) the date which is 3 years after the latest 
of— 
‘‘(A) the date on which the partnership re-
turn for such taxable year was filed,
132 
‘‘(B) the return due date for the taxable 
year, or 
‘‘(C) the date on which the partnership filed 
an administrative adjustment request with re-
spect to such year under section 6227, or 
‘‘(2) in the case of any modification of an im-
puted underpayment under section 6225(c), the date 
that is 270 days (plus the number of days of any ex-
tension consented to by the Secretary under para-
graph (4) thereof) after the date on which everything 
required to be submitted to the Secretary pursuant to 
such section is so submitted, or 
‘‘(3) in the case of any notice of a proposed part-
nership adjustment under section 6231(a)(2), the date 
that is 270 days after the date of such notice. 
‘‘(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.
133 
‘‘(2) SUBSTANTIAL
OMISSION
OF
INCOME.—If 
any partnership omits from gross income an amount 
properly includible therein and such amount is de-
scribed in section 6501(e)(1)(A), subsection (a) shall 
be applied by substituting ‘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 behalf 
of the partnership shall not be treated as a return of 
the partnership. 
‘‘(d) SUSPENSION WHEN SECRETARY MAILS NOTICE 
OF ADJUSTMENT.—If notice of a final partnership adjust-
ment with respect to any taxable year is mailed under sec-
tion 6231, 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 6234 (and, if a petition is 
filed under such section with respect to such notice, 
until the decision of the court becomes final), and 
‘‘(2) for 1 year thereafter.
134 
‘‘PART 2—DEFINITIONS AND SPECIAL RULES 
‘‘Sec. 6241. Definitions and special rules. 
‘‘SEC. 6241. DEFINITIONS AND SPECIAL RULES. 
‘‘For purposes of this subchapter— 
‘‘(1) PARTNERSHIP.—The term ‘partnership’ 
means any partnership required to file a return 
under section 6031(a). 
‘‘(2) PARTNERSHIP
ADJUSTMENT.—The term 
‘partnership adjustment’ means any adjustment in 
the amount of any item of income, gain, loss, deduc-
tion, or credit of a partnership, or any partner’s dis-
tributive share thereof. 
‘‘(3) RETURN DUE DATE.—The term ‘return due 
date’ means, with respect to the taxable year, the date 
prescribed for filing the partnership return for such 
taxable year (determined without regard to exten-
sions). 
‘‘(4) PAYMENTS NONDEDUCTIBLE.—No deduction 
shall be allowed under subtitle A for any payment re-
quired to be made by a partnership under this sub-
chapter. 
‘‘(5) PARTNERSHIPS HAVING PRINCIPAL PLACE 
OF BUSINESS OUTSIDE UNITED STATES.—For pur-
poses of sections 6234, a principal place of business 
located outside the United States shall be treated as 
located in the District of Columbia.
135 
‘‘(6) PARTNERSHIPS IN CASES UNDER TITLE 11 
OF UNITED STATES CODE.— 
‘‘(A) SUSPENSION OF PERIOD OF LIMITA-
TIONS
ON
MAKING
ADJUSTMENT, ASSESSMENT, 
OR COLLECTION.—The running of any period of 
limitations provided in this subchapter on mak-
ing a partnership adjustment (or provided by 
section 6501 or 6502 on the assessment or collec-
tion of any imputed underpayment determined 
under this subchapter) 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— 
‘‘(i) for adjustment or assessment, 60 
days thereafter, and 
‘‘(ii) for collection, 6 months thereafter. 
A rule similar to the rule of section 6213(f)(2) 
shall apply for purposes of section 6232(b). 
‘‘(B) SUSPENSION OF PERIOD OF LIMITA-
TION FOR FILING FOR JUDICIAL REVIEW.—The 
running of the period specified in section 6234 
shall, in a case under title 11 of the United 
States Code, be suspended during the period dur-
136 
ing which the partnership is prohibited by rea-
son of such case from filing a petition under sec-
tion 6234 and for 60 days thereafter. 
‘‘(7) TREATMENT WHERE PARTNERSHIP CEASES 
TO EXIST.—If a partnership ceases to exist before a 
partnership adjustment under this subchapter takes 
effect, such adjustment shall be taken into account by 
the former partners of such partnership under regula-
tions prescribed by the Secretary. 
‘‘(8) EXTENSION TO ENTITIES FILING PARTNER-
SHIP RETURN.—If a partnership return is filed by an 
entity for a taxable year but it is determined that the 
entity is not a partnership (or that there is no entity) 
for such year, then, to the extent provided in regula-
tions, the provisions of this subchapter are hereby ex-
tended in respect of such year to such entity and its 
items and to persons holding an interest in such enti-
ty.’’. 
(2) CLERICAL AMENDMENT.—The table of sub-
chapters for chapter 63 of the Internal Revenue Code 
of 1986, as amended by the preceding provisions of 
this section, is amended by inserting after the item re-
lating to subchapter B the following new item: 
‘‘SUBCHAPTER C. TREATMENT OF PARTNERSHIPS.’’. 
(d) BINDING NATURE OF PARTNERSHIP ADJUSTMENT 
PROCEEDINGS.—Section 6330(c)(4) of such Code is amend-
137 
ed by striking ‘‘or’’ at the end of subparagraph (A), by 
striking the period at the end of subparagraph (B) and in-
serting ‘‘; or’’, and by inserting after subparagraph (B) the 
following new subparagraph: 
‘‘(C) a final determination has been made 
with respect to such issue in a proceeding 
brought under subchapter C of chapter 63.’’. 
(e) RESTRICTION ON AUTHORITY TO AMEND PARTNER 
INFORMATION STATEMENTS.—Section 6031(b) of such Code 
is amended by adding at the end the following: ‘‘Except 
as provided in the procedures under section 6225(c), with 
respect to statements under section 6226, or as otherwise 
provided by the Secretary, information required to be fur-
nished by the partnership under this subsection may not 
be amended after the due date of the return under subsection 
(a) to which such information relates.’’. 
(f) CONFORMING AMENDMENTS.— 
(1) Section 6031(b) of such Code is amended by 
striking the last sentence. 
(2) Section 6422 of such Code is amended by 
striking paragraph (12). 
(3) Section 6501(n) of such Code is amended by 
striking paragraphs (2) and (3) and by striking 
‘‘CROSS REFERENCES’’ and all that follows through
138 
‘‘For period of limitations’’ and inserting ‘‘CROSS 
REFERENCE.—For period of limitations’’. 
(4) Section 6503(a)(1) of such Code is amended 
by striking ‘‘(or section 6229’’ and all that follows 
through ‘‘of section 6230(a))’’. 
(5) Section 6504 of such Code is amended by 
striking paragraph (11). 
(6) Section 6511 of such Code is amended by 
striking subsection (g). 
(7) Section 6512(b)(3) of such Code is amended 
by striking the second sentence. 
(8) Section 6515 of such Code is amended by 
striking paragraph (6). 
(9) Section 6601(c) of such Code is amended by 
striking the last sentence. 
(10) Section 7421(a) of such Code is amended by 
striking ‘‘6225(b), 6246(b)’’ and inserting ‘‘6232(c)’’. 
(11) Section 7422 of such Code is amended by 
striking subsection (h). 
(12) Section 7459(c) of such Code is amended by 
striking ‘‘section 6226’’ and all that follows through 
‘‘or 6252’’ and inserting ‘‘section 6234’’. 
(13) Section 7482(b)(1) of such Code is amend-
ed—
139 
(A) in subparagraph (E), by striking ‘‘sec-
tion 6226, 6228, 6247, or 6252’’ and inserting 
‘‘section 6234’’, 
(B) by striking subparagraph (F), by strik-
ing ‘‘or’’ at the end of subparagraph (E) and in-
serting a period, and by inserting ‘‘or’’ at the 
end of subparagraph (D), and 
(C) in the last sentence, by striking ‘‘section 
6226, 6228(a), or 6234(c)’’ and inserting ‘‘sec-
tion 6234’’. 
(14) Section 7485(b) of such Code is amended by 
striking ‘‘section 6226, 6228(a), 6247, or 6252’’ and 
inserting ‘‘section 6234’’. 
(g) EFFECTIVE DATE.— 
(1) IN GENERAL.—Except as otherwise provided 
in this subsection, the amendments made by this sec-
tion shall apply to returns filed for partnership tax-
able years beginning after December 31, 2017. 
(2) ADMINISTRATIVE ADJUSTMENT REQUESTS.— 
In the case of administrative adjustment request 
under section 6227 of such Code, the amendments 
made by this section shall apply to requests with re-
spect to returns filed for partnership taxable years be-
ginning after December 31, 2017.
140 
(3) ADJUSTED PARTNERS STATEMENTS.—In the 
case of a partnership electing the application of sec-
tion 6226 of such Code, the amendments made by this 
section shall apply to elections with respect to returns 
filed for partnership taxable years beginning after De-
cember 31, 2017. 
(4) ELECTION.—A partnership may elect (at 
such time and in such form and manner as the Sec-
retary of the Treasury may prescribe) for the amend-
ments made by this section (other than the election 
under section 6221(b) of such Code (as added by this 
Act)) to apply to any return of the partnership filed 
for partnership taxable years beginning after the date 
of the enactment of this Act and before January 1, 
2018. 
SEC. 1102. PARTNERSHIP INTERESTS CREATED BY GIFT. 
(a) IN GENERAL.—Section 761(b) of the Internal Rev-
enue Code of 1986 is amended by adding at the end the 
following: ‘‘In the case of a capital interest in a partnership 
in which capital is a material income-producing factor, 
whether a person is a partner with respect to such interest 
shall be determined without regard to whether such interest 
was derived by gift from any other person.’’. 
(b) CONFORMING AMENDMENTS.—Section 704(e) of 
such Code is amended—
141 
(1) by striking paragraph (1) and by redesig-
nating paragraphs (2) and (3) as paragraphs (1) and 
(2), respectively, 
(2) by striking ‘‘this section’’ in paragraph (2) 
(as so redesignated) and inserting ‘‘this subsection’’, 
and 
(3) by striking ‘‘FAMILY PARTNERSHIPS’’ in the 
heading and inserting ‘‘PARTNERSHIP INTERESTS 
CREATED BY GIFT’’. 
(c) EFFECTIVE DATE.—The amendments made by this 
section shall apply to partnership taxable years beginning 
after December 31, 2015. 
TITLE XII—DESIGNATION OF 
SMALL HOUSE ROTUNDA 
SEC. 1201. DESIGNATING SMALL HOUSE ROTUNDA AS 
‘‘FREEDOM FOYER’’. 
The first floor of the area of the House of Representa-
tives wing of the United States Capitol known as the small 
House rotunda is designated the ‘‘Freedom Foyer’’. 
Attest: 
Clerk.
114TH CONGRESS 
1ST SESSION 
H.R. 1314 
HOUSE AMENDMENT TO 
SENATE AMENDMENT