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 discusses whether partners can challenge an election made by the partnership. Up until this point my last two posts have only discussed determining whether the push-out election made by the audited partnership or the partnership that filed the administrative adjustment request (AAR partnership) is invalid. However, there is another group worth mentioning here. For both an AAR push-out 1 election and an exam push-out election, if a 2 statement is furnished to a passthrough partner, that passthrough partner has it owns obligations
and consequences under the Bipartisan Budget 3 Act. If a passthrough partner receives a push-out statement, it is required to furnish statements of its own to its reviewed year partners by the extended due date of the audited or AAR partnership’s adjustment year return, including extensions (the six-month extension is applied regardless of whether the audited or AAR partnership requests an extension or is required to 4 file an adjustment year return). If the passthrough partner fails to timely furnish proper statements, it must pay an imputed underpayment (IU) calculated on the adjustments contained in the push-out statement furnished to it.5 So how does the IRS determine that a passthrough partner did not timely or correctly furnish push-out statements such that it is now liable for an IU? The answer is — it’s not clear (you were going to guess “it depends,” weren’t you?). The Internal Revenue Code refers to the IU that a passthrough partner may be required to pay as the result of a push-out election as a “specified 6 similar amount.” The most important thing to note about a specified similar amount is that the restrictions on assessing an IU (for example,
3
A passthrough partner is a passthrough entity that holds an interest in a partnership. A passthrough entity is a partnership, S corporation, trust, or an estate. An entity that is a wholly owned entity disregarded as separate from its own for federal income tax purposes is not a passthrough entity. Reg. section 301.6241-1(a)(5). 4
Reg. section 301.6226-3(e)(3)(ii). Reg. section 301.6227-3(c) adopts the rules for passthrough partners in exam push-out elections for AAR pushout elections with differences not relevant here (for example, content of the statements, interest rate). 5
1
For purposes of this post, an AAR push-out election is an election made under section 6227(b)(2) and an exam push-out election is an election made under section 6226(a). 2
As defined in reg. section 301.6241-1(a)(5).
Reg. section 301.6226-3(e)(4). There is also a difference in how adjustments that do not result in an IU are treated for passthrough partners in an AAR push-out versus an exam push-out but those differences do not matter for purposes of the discussions in this post. 6
Section 6232(f)(2).
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: Passthrough Partners, Part 3