PROCEDURALLY TAXING tax notes federal
by Jenni Black 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 examines how the IRS may determine if a partnership’s push-out election is invalid. Under the centralized partnership audit regime enacted by the Bipartisan Budget Act of 2015, any adjustments to partnership-related items (PRIs) must be determined, and any tax attributable to those adjustments must be assessed and collected, at the partnership level, unless BBA provides for an exception.1 One of the exceptions to when the tax attributable to partnership adjustments must be assessed and collected at the partnership level is if the partnership makes an election under section 6226 to “push out” the adjustments to its partners from the reviewed year.2 This post will examine how the IRS may determine a partnership’s push-out election is
invalid, how the partnership can challenge that determination, complications in tiered structures, and whether partners can challenge an election made by the partnership. This post and two more to follow will also discuss how those issues differ if the election is made as the result of an exam or the filing of an administrative adjustment request (AAR). In order to make a push-out election, the partnership must receive a notice of final 3 partnership adjustment (FPA) from the IRS as part of an examination or make the election as part of the filing of an AAR.4 The FPA is similar to a statutory notice of deficiency and is the notice the IRS must send in order to make adjustments to PRIs (unless a settlement is entered into) and which provides the partnership its “ticket” to 5 challenge the IRS’s adjustments in court. As such, the FPA is issued at the end of an exam. After the IRS issues the FPA, the partnership (through the partnership representative) has 45 days to make an election under section 6226 to push out the 6 adjustments to its reviewed year partners. However, that’s not the end of the story. In order to have a valid push-out election, the partnership must properly furnish statements to its reviewed year partners within 60 days of when the partnership adjustments become finally
3
If the partnership settles with the IRS during the course of the exam and the IRS does not issue an FPA, the partnership cannot elect to push out the adjustments. Practitioners should be mindful of this when settling with the IRS and understand fully what the partnership is agreeing to. 4
Sections 6226(a), 6227(b)(2); reg. sections 301.6226-1(c)(2), 301.6227-
1(a). 5 1
Sections 6231(a)(3), 6234; reg. sections 301.6231-1, 301.6234-1.
6
Section 6221(a).
2
The reviewed year is the tax year to which the adjustment relates. Section 6225(d)(1); reg. section 301.6241-1(a)(8).
Section 6226(a)(1); reg. section 301.6226-1(c)(2). Partnerships make the election using Form 8988, “Election for Alternative to Payment of the Imputed Underpayment — Section 6226.” For AARs, the election is made on the AAR.
TAX NOTES FEDERAL, VOLUME 186, JANUARY 27, 2025 For more Tax Notes® Federal content, please visit www.taxnotes.com.
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Challenging the Validity of a Push-Out Election Under BBA: Is the Push-Out Election a PRI?