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. In this post, Black explores what happens if partnership-related items, as adjusted, would be allocated differently than they were on the original return due to provisions in the partnership agreement. 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 (or section 6227 in the case of administrative adjustment requests (AARs)) to “push out” the adjustments to its 2 partners from the reviewed year. This article will explore allocating adjustments to partners on push out statements. Specifically, this article will discuss what happens if the items, as adjusted, would be allocated differently than they were on
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the original return due to provisions in the partnership agreement. In part two of my article, I’ll discuss complications that may arise in tiered partnerships and what happens if the pushed-out adjustments would change as they flowed through the tiers based on the facts and circumstances of upper-tier partnerships. Despite TLC’s warning to the contrary, we will go chasing waterfalls. Under section 6226(a)(2), the partnership must furnish, to each partner from the reviewed year, a statement of the partner’s “share” of any adjustment to a PRI if the partnership is pushing out the adjustments to its partners. The statute does not say what a partner’s “share” of the adjustment is. However, section 6226(a)(2) provides that the IRS can set the time and manner of furnishing the statements to the reviewed year partners — and it did, in reg. section 301.6226-2. Under reg. section 301.6226-2(f), adjustments are allocated to reviewed year partners “in the same manner” the adjusted item was originally allocated on the partnership’s reviewed year return, unless one of the two exceptions apply. One of the exceptions is for situations where the adjusted item did not appear on the original return, in which case the adjusted item is allocated in accordance with normal rules regarding partnership allocations (including the partnership agreement). The second exception is if the adjustment specified how the item is allocated, at which point the item is allocated in accordance with the adjustment. Reg. section 301.6227-1(e)(2)
IRC section 6221(a).
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The reviewed year is the tax year to which the adjustment relates. IRC section 6225(d)(1); reg. section 301.6241-1(a)(8).
TAX NOTES FEDERAL, VOLUME 187, MAY 12, 2025 For more Tax Notes® Federal content, please visit www.taxnotes.com.
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Chasing Waterfalls: Allocating Adjustments in a Push Out Election