26 USC 6225 - Partnership adjustment by Secretary

U.S Code last checked for updates: May 19, 2024

§ 6225.

Partnership adjustment by Secretary

(a)

In general

In the case of any adjustments by the Secretary to any partnership-related items with respect to any reviewed year of a partnership—

(1)

if such adjustments result in an imputed underpayment, the partnership shall pay an amount equal to such imputed underpayment in the adjustment year as provided in section 6232, and

(2)

if such adjustments do not result in an imputed underpayment, such adjustments shall be taken into account by the partnership in the adjustment year.

(b)

Determination of imputed underpayments

For purposes of this subchapter—

(1)

In general

Except as otherwise provided in this section, any imputed underpayment with respect to any reviewed year shall be determined by the Secretary by—

(A)

appropriately netting all partnership adjustments with respect to such reviewed year, and

(B)

applying the highest rate of tax in effect for the reviewed year under section 1 or 11.

(2)

Adjustments to distributive shares of partners not netted

(3)

Adjustments separately netted by category

(4)

Limitation on adjustments that may be taken into account

If any adjustment would (but for this paragraph)—

(A)

result in a decrease in the amount of the imputed underpayment, and

(B)

could be subject to any additional limitation under the provisions of this title (or not allowed, in whole or in part, against ordinary income) if such adjustment were taken into account by any person,

such adjustment shall not be taken into account under paragraph (1)(A) except to the extent otherwise provided by the Secretary.

(c)

Modification of imputed underpayments

(1)

In general

(2)

Procedures for partners to take adjustments into account

(A)

Amended returns of partners

Such procedures shall provide that if—

(i)

one or more partners file returns for the taxable year of the partners which includes the end of the reviewed year of the partnership (and for any taxable year with respect to which any tax attribute is affected by reason of any adjustment referred to in clause (ii)),

(ii)

such returns take into account all adjustments under subsection (a) properly allocable to such partners (and the effect of such adjustments on any tax attributes), and

(iii)

payment of any tax due is included with such returns,

then the imputed underpayment amount shall be determined without regard to the portion of the adjustments so taken into account.

(B)

Alternative procedure to filing amended returns

Such procedures shall provide that, with respect to any partner referred to in subparagraph (A), the requirements of subparagraph (A) shall be treated as satisfied with respect to adjustments properly allocable to such partner if, in lieu of filing the returns described in such subparagraph—

(i)

the amounts described in subparagraph (A)(iii) are paid by the partner,

(ii)

the partner agrees to take into account, in the form and manner prescribed by the Secretary, the adjustments to the tax attributes of such partner referred to in subparagraph (A)(ii), and

(iii)

such partner provides, in the form and manner specified by the Secretary (including, if the Secretary so specifies, in the same form as on an amended return), such information as the Secretary may require to carry out this subparagraph.

(C)

Reallocation of distributive share

(D)

Application of statute of limitations

(E)

Adjustments to tax attributes binding for affected taxable years of partner

(F)

 So in original. Two subpars. (F) have been enacted.

Application to partnerships and S corporations in tiered structures

(i)

In general

In the case of any partnership any partner of which is a partnership, subparagraph (A) or (B) may apply with respect to any partner (hereafter in this subparagraph referred to as the “relevant partner”) in the chain of ownership of such partnerships if—

(I)

such information as the Secretary may require is furnished to the Secretary for purposes of carrying out this paragraph with respect to such partnerships (including any information the Secretary may require with respect to any chain of ownership of the relevant partner), and

(II)

to such extent as the Secretary may require, each partnership in the chain of ownership between the relevant partner and the audited partnership satisfies the requirements of subparagraph (A) or (B).

(ii)

Treatment of S corporations

(F)

 ¹ Adjustments not treated as amended return

(3)

Tax-exempt partners

(4)

Modification of applicable highest tax rates

(A)

In general

Such procedures shall provide for taking into account a rate of tax lower than the rate of tax described in subsection (b)(1)(A) with respect to any portion of the adjustment that the partnership demonstrates is allocable to a partner which—

(i)

is a C corporation, or

(ii)

in the case of a capital gain or qualified dividend, is an individual.

In no event shall the lower rate determined under the preceding sentence be less than the highest rate in effect with respect to the income and taxpayer described in clause (i) or clause (ii), as the case may be. For purposes of clause (ii), an S corporation shall be treated as an individual.

(B)

Portion of imputed underpayment to which lower rate applies

(i)

In general

(ii)

Rule in case of varied treatment of items among partners

(5)

Certain passive losses of publicly traded partnerships

(A)

In general

In the case of a publicly traded partnership (as defined in section 469(k)(2)), such procedures shall provide—

(i)

for determining the imputed underpayment without regard to the portion of the adjustment that the partnership demonstrates is attributable to a net decrease in a specified passive activity loss which is allocable to a specified partner, and

(ii)

for the partnership to take such net decrease into account as an adjustment in the adjustment year with respect to the specified partners to which such net decrease relates.

(B)

Specified passive activity loss

For purposes of this paragraph, the term “specified passive activity loss” means, with respect to any specified partner of such publicly traded partnership, the lesser of—

(i)

the passive activity loss of such partner which is separately determined with respect to such partnership under section 469(k) with respect to such partner’s taxable year in which or with which the reviewed year of such partnership ends, or

(ii)

such passive activity loss so determined with respect to such partner’s taxable year in which or with which the adjustment year of such partnership ends.

(C)

Specified partner

For purposes of this paragraph, the term “specified partner” means any person if such person—

(i)

is a partner of the publicly traded partnership referred to in subparagraph (A),

(ii)

is described in section 469(a)(2), and

(iii)

has a specified passive activity loss with respect to such publicly traded partnership,

with respect to each taxable year of such person which is during the period beginning with the taxable year of such person in which or with which the reviewed year of such publicly traded partnership ends and ending with the taxable year of such person in which or with which the adjustment year of such publicly traded partnership ends.

(6)

Other procedures for modification of imputed underpayment

(7)

Year and day for submission to Secretary

(8)

Decision of Secretary

(9)

Modification of adjustments not resulting in an imputed underpayment

(d)

Definitions

For purposes of this subchapter—

(1)

Reviewed year

(2)

Adjustment year

The term “adjustment year” means the partnership taxable year in which—

(A)

in the case of an adjustment pursuant to the decision of a court in a proceeding brought under section 6234, such decision becomes final,

(B)

in the case of an administrative adjustment request under section 6227, such administrative adjustment request is made, or

(C)

in any other case, notice of the final partnership adjustment is mailed under section 6231.

(Added Pub. L. 114–74, title XI, § 1101(c)(1), Nov. 2, 2015, 129 Stat. 628; amended Pub. L. 114–113, div. Q, title IV, § 411(a), Dec. 18, 2015, 129 Stat. 3121; Pub. L. 115–141, div. U, title II, §§ 202, 203(a), 206(b), (p)(1), Mar. 23, 2018, 132 Stat. 1173, 1174, 1178, 1182.)

cite as: 26 USC 6225