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PROCEDURALLY TAXING tax notes federal Here We Go Again: What Is a Partnership Item?

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 is also a contributing author for Procedurally Taxing. In this post, Black examines factors that affect what qualifies as a partnership item. This post reflects the author’s personal views and not necessarily those of Citrin Cooperman. Recently there has been a lot of focus on what a partnership item is under the unified partnership audit regime enacted by the Tax Equity and Fiscal Responsibility Act of 1982 (for example, Denham Capital,1 Soroban2), especially when it comes to something like net earnings from self-employment (NESE). And to be clear, I am referring to NESE reported by a partnership on Schedule K, line 14a, not the ultimate amount a partner pays self-employment tax on (these are two entirely different things).3 This is nothing new. I don’t know where we’re going, but I sure know where we’ve been. And where we’ve been is fighting about what a partnership item is since the ink dried on the law. So, what is a partnership item? In part 1 of this post, I lay the groundwork

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for factors that may impact whether something is a partnership item and, in part 2, I look at how the courts have ruled on those factors in the past. We keep searching for an answer; we never seem to find what we’re looking for. Here we go again.4 As with all things, we start with the statute. The term “partnership item” is defined in section 6231(a)(3) (prior to repeal by the Bipartisan Budget Act) as “with respect to the partnership, any item required to be taken into account for the partnership’s taxable year under any provision of subtitle A to the extent regulations prescribed by the Secretary provide that, for purposes of this subtitle, such item is more appropriately determined at the partnership level than at the partner level.” Breaking it down you get: (1) with respect to the partnership5 any item required to be taken into account for the partnership’s tax year under any provision of subtitle A, and (2) the regulations provide that it’s more appropriately determined at the partnership level. It’s the first one that’s getting all the attention right now. Let’s look at that one. What’s “any item required to be taken into account for the partnership taxable year?” Does it mean the partnership must take the item into account under subtitle A? That’s not what it says. It’s written in the passive voice. It doesn’t say who has to take it into account under subtitle A, it just says it has to be taken into account under subtitle A for the partnership tax year. When a partnership files a return for its tax year, it reports each partner’s allocable share of the items on the partnership

Denham Capital Management v. Commissioner, T.C. Memo. 2024-114. Soroban Capital Partners v. Commissioner, T.C. Memo. 2025-52.

The determination as to the amount of income the ultimate taxpayer pays self-employment tax on (and the amount of the self-employment tax) requires accounting for self-employment income and expenses from sources other than the partnership at issue and whether certain payroll tax limits have been met by the individual.

I picked the pop culture reference for this post (“Here I Go Again” by Whitesnake in case you didn’t recognize it) before I realized it came out in 1982, the year TEFRA was enacted. It was a happy coincidence. 5

I went back and forth on whether “with respect to the partnership” is a separate element from “required to be taken into account for the partnership taxable year.” Courts usually consider them as a single item, so I did as well. It’s a “no duh” requirement. To be a partnership item, it has to relate in some way to the partnership at issue.

TAX NOTES FEDERAL, VOLUME 192, AUGUST 24, 2026 For more Tax Notes Federal content, visit www.taxnotes.com.

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by Jenni Black