26 U.S.C. § 6225 — Partnership adjustment by Secretary

Page 3536 TITLE 26—INTERNAL REVENUE CODE § 6225 other person) with a substantial presence in the United States as the partnership representative who shall have the sole authority to act on be- half of the partnership under this subchapter. In any case in which such a designation is not in effect, the Secretary may select any person as the partnership representative. (b) Binding effect A partnership and all partners of such partner- ship shall be bound— (1) by actions taken under this subchapter by the partnership, and (2) by any final decision in a proceeding brought under this subchapter with respect to the partnership. (Added Pub. L. 114–74, title XI, § 1101(c)(1), Nov. 2, 2015, 129 Stat. 627.) Editorial Notes PRIOR PROVISIONS Prior sections 6223 and 6224 were repealed by Pub. L. 114–74, title XI, § 1101(a), (g), Nov. 2, 2015, 129 Stat. 625, 638, applicable to returns filed for partnership taxable years beginning after Dec. 31, 2017. Section 6223, added Pub. L. 97–248, title IV, § 402(a), Sept. 3, 1982, 96 Stat. 649, related to notice to partners of proceedings. Section 6224, added Pub. L. 97–248, title IV, § 402(a), Sept. 3, 1982, 96 Stat. 651; amended Pub. L. 107–147, title IV, § 416(d)(1)(A), Mar. 9, 2002, 116 Stat. 55, related to partner participation in administrative proceedings, waiver of partner’s rights, and settlement agreements. Statutory Notes and Related Subsidiaries EFFECTIVE DATE Section applicable to returns filed for partnership taxable years beginning after Dec. 31, 2017, with certain exceptions, see section 1101(g) of Pub. L. 114–74, set out as a note under section 6221 of this title. PART II—PARTNERSHIP ADJUSTMENTS Sec. 6225. Partnership adjustment by Secretary. 6226. Alternative to payment of imputed under- payment by partnership. 6227. Administrative adjustment request by part- nership. Editorial Notes AMENDMENTS 2018—Pub. L. 115–141, div. U, title II, § 206(p)(10), Mar. 23, 2018, 132 Stat. 1183, amended part II heading gen- erally, reenacting heading without change. § 6225. Partnership adjustment by Secretary (a) In general In the case of any adjustments by the Sec- retary to any partnership-related items with re- spect 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 ef- fect for the reviewed year under section 1 or 11. (2) Adjustments to distributive shares of part- ners not netted In the case of any adjustment which reallo- cates the distributive share of any item from one partner to another, such adjustment shall be taken into account by disregarding so much of such adjustment as results in a decrease in the amount of the imputed underpayment. (3) Adjustments separately netted by category For purposes of paragraph (1)(A), partnership adjustments for any reviewed year shall first be separately determined (and netted as appro- priate) within each category of items that are required to be taken into account separately under section 702(a) or other provision of this title. (4) Limitation on adjustments that may be taken into account If any adjustment would (but for this para- graph)— (A) result in a decrease in the amount of the imputed underpayment, and (B) could be subject to any additional limi- tation under the provisions of this title (or not allowed, in whole or in part, against or- dinary income) if such adjustment were taken into account by any person, such adjustment shall not be taken into ac- count under paragraph (1)(A) except to the ex- tent otherwise provided by the Secretary. (c) Modification of imputed underpayments (1) In general The Secretary shall establish procedures under which the imputed underpayment amount may be modified consistent with the requirements of this subsection. (2) Procedures for partners to take adjust- ments 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 in- cludes the end of the reviewed year of the partnership (and for any taxable year with respect to which any tax attribute is af- fected by reason of any adjustment re- ferred 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 at- tributes), and (iii) payment of any tax due is included with such returns, then the imputed underpayment amount shall be determined without regard to the Page 3537 TITLE 26—INTERNAL REVENUE CODE § 6225 1 So in original. Two subpars. (F) have been enacted. portion of the adjustments so taken into ac- count. (B) Alternative procedure to filing amended returns Such procedures shall provide that, with respect to any partner referred to in sub- paragraph (A), the requirements of subpara- graph (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 subpara- graph (A)(iii) are paid by the partner, (ii) the partner agrees to take into ac- count, 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 (in- cluding, if the Secretary so specifies, in the same form as on an amended return), such information as the Secretary may re- quire to carry out this subparagraph. (C) Reallocation of distributive share In the case of any adjustment which re- allocates the distributive share of any item from one partner to another, this paragraph shall apply with respect to any such partner only if the requirements of subparagraph (A) or (B) are satisfied with respect to all part- ners affected by such adjustment. (D) Application of statute of limitations In the case of adjustments referred to in subparagraph (A)(ii), sections 6501 and 6511 shall not apply with respect to any return filed for purposes of subparagraph (A)(i) or any amount paid under subparagraph (A)(iii) or (B)(i). (E) Adjustments to tax attributes binding for affected taxable years of partner The adjustments to the tax attributes of any partner provided for in subparagraph (A)(ii) or (B)(ii) shall be binding with respect to the taxable year of the partner which in- cludes the end of the reviewed year of the partnership and any taxable years for which any tax attribute is affected by such adjust- ment. Any failure to so treat any such tax attribute shall be treated for purposes of this title in the same manner as a failure to treat a partnership-related item in a manner which is consistent with the treatment of such item on the partnership return within the meaning of section 6222. (F) 1 Application to partnerships and S cor- porations in tiered structures (i) In general In the case of any partnership any part- ner of which is a partnership, subpara- graph (A) or (B) may apply with respect to any partner (hereafter in this subpara- graph referred to as the ‘‘relevant part- ner’’) in the chain of ownership of such partnerships if— (I) such information as the Secretary may require is furnished to the Sec- retary for purposes of carrying out this paragraph with respect to such partner- ships (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 sat- isfies the requirements of subparagraph (A) or (B). (ii) Treatment of S corporations For purposes of clause (i), an S corpora- tion and its shareholders shall be treated in the same manner as a partnership and its partners. (F) 1 Adjustments not treated as amended re- turn An administrative adjustment request under section 6227 and a partnership adjust- ment tracking report under section 6226(b)(4)(A) shall not be treated as a return for purposes of this paragraph. (3) Tax-exempt partners Such procedures shall provide for deter- mining the imputed underpayment without re- gard to the portion of the adjustment that the partnership demonstrates is allocable to a partner that would not owe tax by reason of its status as a tax-exempt entity (as defined in section 168(h)(2)). (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 adjust- ment 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 quali- fied 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 pur- poses 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 Except as provided in clause (ii), the por- tion of the imputed underpayment to which the lower rate applies with respect to a partner under subparagraph (A) shall be determined by reference to the part- ners’ distributive share of items to which the imputed underpayment relates. (ii) Rule in case of varied treatment of items among partners If the imputed underpayment is attrib- utable to the adjustment of more than 1 Page 3538 TITLE 26—INTERNAL REVENUE CODE § 6225 item, and any partner’s distributive share of such items is not the same with respect to all such items, then the portion of the imputed underpayment to which the lower rate applies with respect to a partner under subparagraph (A) shall be deter- mined by reference to the amount which would have been the partner’s distributive share of net gain or loss if the partnership had sold all of its assets at their fair mar- ket value as of the close of the reviewed year of the partnership. (5) Certain passive losses of publicly traded partnerships (A) In general In the case of a publicly traded partner- ship (as defined in section 469(k)(2)), such procedures shall provide— (i) for determining the imputed under- payment without regard to the portion of the adjustment that the partnership dem- onstrates 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 de- crease 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 pub- licly traded partnership, the lesser of— (i) the passive activity loss of such part- ner which is separately determined with respect to such partnership under section 469(k) with respect to such partner’s tax- able year in which or with which the re- viewed year of such partnership ends, or (ii) such passive activity loss so deter- mined with respect to such partner’s tax- able year in which or with which the ad- justment 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 part- nership, 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 im- puted underpayment The Secretary may by regulations or guid- ance provide for additional procedures to mod- ify imputed underpayment amounts on the basis of such other factors as the Secretary de- termines are necessary or appropriate to carry out the purposes of this subsection. (7) Year and day for submission to Secretary Anything required to be filed or submitted under this subsection shall be submitted to the Secretary not later than the close of the 270-day period beginning on the date on which the notice of a proposed partnership adjust- ment is mailed under section 6231 unless such period is extended with the consent of the Sec- retary. (8) Decision of Secretary Any modification of the imputed under- payment amount under this subsection shall be made only upon approval of such modifica- tion by the Secretary. (9) Modification of adjustments not resulting in an imputed underpayment The Secretary shall establish procedures under which the adjustments described in sub- section (a)(2) may be modified in such manner as the Secretary determines appropriate. (d) Definitions For purposes of this subchapter— (1) Reviewed year The term ‘‘reviewed year’’ means the part- nership taxable year to which the item being adjusted relates. (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 be- comes final, (B) in the case of an administrative adjust- ment request under section 6227, such admin- istrative adjustment request is made, or (C) in any other case, notice of the final partnership adjustment is mailed under sec- tion 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.) Editorial Notes PRIOR PROVISIONS A prior section 6225, added Pub. L. 97–248, title IV, § 402(a), Sept. 3, 1982, 96 Stat. 652; amended Pub. L. 105–34, title XII, § 1239(a), Aug. 5, 1997, 111 Stat. 1027, al- lowing assessments to be made only after partnership level proceedings were completed, was repealed by Pub. L. 114–74, title XI, § 1101(a), Nov. 2, 2015, 129 Stat. 625. AMENDMENTS 2018—Subsec. (a). Pub. L. 115–141, § 202(c)(1), amended subsec. (a) generally. Prior to amendment, subsec. (a) related to adjustment by the Secretary in the amount of any item of income, gain, loss, deduction, or credit of a partnership, or any partner’s distributive share thereof. Subsec. (b). Pub. L. 115–141, § 202(a), amended subsec. (b) generally. Prior to amendment, subsec. (b) consisted Page 3539 TITLE 26—INTERNAL REVENUE CODE § 6226 of pars. (1) and (2) relating to determination of imputed underpayments in general and adjustments to distribu- tive shares of partners not netted, respectively. Subsec. (c)(2). Pub. L. 115–141, § 203(a), amended par. (2) generally. Prior to amendment, par. (2) related to amended returns of partners. Subsec. (c)(2)(F). Pub. L. 115–141, § 206(b), added sub- par. (F) relating to adjustments not treated as amended return. Subsec. (c)(3). Pub. L. 115–141, § 202(b)(1), substituted ‘‘without regard to the portion of the adjustment’’ for ‘‘without regard to the portion thereof’’. Subsec. (c)(4)(A). Pub. L. 115–141, § 202(b)(2), sub- stituted ‘‘with respect to any portion of the adjust- ment’’ for ‘‘with respect to any portion of the imputed underpayment’’ in introductory provisions. Subsec. (c)(5)(A)(i). Pub. L. 115–141, § 202(b)(3), sub- stituted ‘‘without regard to the portion of the adjust- ment’’ for ‘‘without regard to the portion thereof’’. Subsec. (c)(7). Pub. L. 115–141, § 206(p)(1), substituted ‘‘filed or submitted under this subsection’’ for ‘‘sub- mitted pursuant to paragraph (1)’’. Subsec. (c)(9). Pub. L. 115–141, § 202(c)(2), added par. (9). 2015—Subsec. (c)(4)(A)(i). Pub. L. 114–113, § 411(a)(1), struck out ‘‘in the case of ordinary income,’’ before ‘‘is a C corporation’’. Subsec. (c)(5) to (8). Pub. L. 114–113, § 411(a)(2), added par. (5) and redesignated former pars. (5) to (7) as (6) to (8), respectively. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2018 AMENDMENT Amendment by Pub. L. 115–141 effective as if included in section 1101 of Pub. L. 114–74, see section 207 of Pub. L. 115–141, set out as a note under section 6031 of this title. EFFECTIVE DATE OF 2015 AMENDMENT Amendment by Pub. L. 114–113 effective as if included in section 1101 of Pub. L. 114–74, see section 411(e) of Pub. L. 114–113, set out as a note under section 6031 of this title. EFFECTIVE DATE Section applicable to returns filed for partnership taxable years beginning after Dec. 31, 2017, with certain exceptions, see section 1101(g) of Pub. L. 114–74, set out as a note under section 6221 of this title. § 6226. Alternative to payment of imputed under- payment by partnership (a) In general If the partnership— (1) not later than 45 days after the date of the notice of final partnership adjustment, elects the application of this section with re- spect to an imputed underpayment, and (2) at such time and in such manner as the Secretary may provide, furnishes to each part- ner of the partnership for the reviewed year and to the Secretary a statement of the part- ner’s share of any adjustment to a partner- ship-related item (as determined in the notice of final partnership adjustment), section 6225 shall not apply with respect to such underpayment (and no assessment of tax, levy, or proceeding in any court for the collection of such underpayment shall be made against such partnership) and each such partner shall take such adjustment into account as provided in subsection (b). The election under paragraph (1) shall be made in such manner as the Secretary may provide and, once made, shall be revocable only with the consent of the Secretary. (b) Adjustments taken into account by partner (1) Tax imposed in year of statement Except as provided in paragraph (4), each partner’s tax imposed by chapter 1 for the tax- able year which includes the date the state- ment was furnished under subsection (a) shall be adjusted by the aggregate of the correction amounts determined under paragraph (2) for the taxable years referred to therein. (2) Correction amounts The correction amounts determined under this paragraph are— (A) in the case of the taxable year of the partner which includes the end of the re- viewed year, the amount by which the tax imposed under chapter 1 would increase or decrease if the partner’s share of the adjust- ments described in subsection (a) were taken into account for such taxable year, and (B) in the case of any taxable year after the taxable year referred to in subparagraph (A) and before the taxable year referred to in paragraph (1), the amount by which the tax imposed under chapter 1 would increase or decrease by reason of the adjustment to tax attributes under paragraph (3). (3) Adjustment of tax attributes Any tax attribute which would have been af- fected if the adjustments described in sub- section (a) were taken into account for the taxable year referred to in paragraph (2)(A) shall— (A) in the case of any taxable year referred to in paragraph (2)(B), be appropriately ad- justed for purposes of applying such para- graph, and (B) in the case of any subsequent taxable year, be appropriately adjusted. (4) Treatment of partnerships and S corpora- tions in tiered structures (A) In general If a partner which receives a statement under subsection (a)(2) is a partnership or an S corporation, such partner shall, with re- spect to the partner’s share of the adjust- ment— (i) file with the Secretary a partnership adjustment tracking report which includes such information as the Secretary may re- quire, and (ii)(I) furnish statements under rules similar to the rules of subsection (a)(2), or (II) if no such statements are furnished, compute and pay an imputed under- payment under rules similar to the rules of section 6225 (other than paragraphs (2), (7), and (9) of subsection (c) thereof). (B) Due date For purposes of subparagraph (A), with re- spect to a partner’s share of the adjustment, the partnership adjustment tracking report shall be filed, and the imputed under- payment shall be paid or statements shall be furnished, not later than the due date for the return for the adjustment year of the au- dited partnership.