PROCEDURALLY TAXING tax notes federal
by Jenni Black
Most people are familiar with the iconic quote from the movie Jerry Maguire in which Tom Cruise’s character yells into the phone, “Show me the money!” (Sadly, this movie is likely considered “old” or “classic” at this point even though it came out the year I graduated high school, which couldn’t be that long ago.) Dealing with money, and specifically adjusting items that are money, under the centralized partnership audit regime enacted by the Bipartisan Budget Act of 2015 is fairly straightforward (although not without controversy) — you add them together and multiply them by the highest tax under section 1 or section 11 for the tax year to which the adjustments relate. But what about items on the partnership return that aren’t money (nonmoney or nonmonetary), such as gallons of fuel for certain fuel credits, kilowatt hours for certain energy credits, whether the partner is general or
limited, or even whether the partnership validly elected out of BBA? These items are clearly partnership-related items (PRIs) as they appear on the partnership return and are relevant to determining the tax liability of any person under chapter 1. See reg. section 301.6241-1(a)(6)(ii)-(iv). As PRIs, any adjustments to those items, and any tax attributable thereto, must occur at the partnership level. But as these items don’t represent money, you can’t really apply a tax rate to them. So, what are they? As with all legal questions the answer is: It depends. Section 6241(2)(A) defines the term “partnership adjustment” as “any adjustment to a [PRI].” When a partnership adjustment is made, section 6225(a) places the adjustments into two categories — adjustments that result in an imputed underpayment (IU), and those that don’t. Reg. section 301.6225-1(f) defines adjustments that do not result in an IU (ATDNR) as the adjustments included in a grouping or subgrouping which, after netting, totals zero or less than zero, and adjustments included in the calculation of an IU when the total IU is zero or less than zero. But, practically, how can an adjustment result in an IU if an IU is the amount of money the partnership owes, and these items are not money? If you want to get super technical (and who among us does not?), a nonmonetary item would be placed in its own subgrouping as it is not something that can net with other adjustments and that subgrouping, after netting, would be zero or less than zero making all adjustments in that subgrouping an ATDNR. But subgroups are only created if there is a negative adjustment and an adjustment to a non-monetary item is not a negative adjustment because it’s not a decrease in income, increase in an expense, increase in a credit, or decrease in a chapter 1 liability or prior IU. Reg. section 301.6225-1(d)(2)(ii). But taking this approach would mean that a nonmonetary
TAX NOTES FEDERAL, VOLUME 185, DECEMBER 9, 2024
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Jenni Black is a managing director in Citrin Cooperman’s National Tax Office and the practice leader of the Tax Procedure and Controversy practice. She has over two decades of combined legal and accounting experience and has extensive experience dealing with complex tax issues, including partnership audit procedures under the Tax Equity and Fiscal Responsibility Act of 1982 and the Bipartisan Budget Act of 2015. In this post, Black considers how adjustments to nonmonetary items on partnership returns should be treated under the Bipartisan Budget Act’s centralized partnership audit regime.
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BBA: Adjustments to ‘Nonmoney’ Numbers