PROCEDURALLY TAXING tax notes federal
by Jenni Black
Imagine sitting down with your client and discussing the upcoming filing of their tax return. The client provides you with a Schedule K-1, “Partner’s Share of Income, Deductions, Credits, etc.,” for a partnership in which the client is a partner, and the client says, “I don’t think this Schedule K-1 is correct.” You look at it and agree that some of the items appear to be incorrect. The filing deadline for the client’s return is, of course, in two days. Does the partner have to report the incorrect items on their return? What are the client’s options? Under section 6222, partners in partnerships subject to centralized partnership audit regime enacted by the Bipartisan Budget Act of 2015 must report partnership-related items (PRIs) on their returns consistent with how the partnership
treated those same PRIs. That means the partner must report the item in the same amount, character, and timing as the partnership. This concept is not new. Partners in partnerships subject to the Tax Equity and Fiscal Responsibility Act of 1982 also, under rules nearly identical to section 6222 (as amended by the BBA), had to report the partnership’s items consistent with how the partnership treated the items and, under section 6037(c), shareholders in S corporations must report the items of an S corporation consistent with how the S corporation treated the items. But does that mean the partner is doomed to report the wrong information unless the partnership corrects the items on its previously filed return? No. The partner may file inconsistently with the partnership if the partner notifies the IRS by attaching Form 8082, “Notice of Inconsistent Treatment or Administrative Adjustment Request (AAR),” to their return. What happens if the partner files inconsistently from the partnership? What if the partner forgets to file Form 8082? What about indirect partners? Are there limits on what the partner can treat inconsistently? This article aims to try and answer those questions. First, let’s take a step back and level set. As noted above, the requirement to file consistently with an entity is not new and existed for partners in TEFRA partnerships and shareholders in S corporations. But it doesn’t apply to partners in partnerships that are not subject to the BBA or TEFRA. Yes, that’s correct; partners have no legal requirement to report consistently with a nonBBA partnership. When a partner in a BBA partnership files a notice of inconsistent treatment, it’s turning off the requirement in section 6222 that the partner must file consistently with the partnership — the same as if the partner
TAX NOTES FEDERAL, VOLUME 186, JANUARY 13, 2025
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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 evaluates a partner’s options for IRS reporting in its capacity as a partner when the partner believes the partnership has erred in its tax filings.
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To Be or Not to Be: Inconsistent Treatment Under the BBA