Sec. 3622. Partnership audits and adjustments
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Chapter 63 is amended by striking subchapter C (and by striking the item relating to such subchapter in the table of subchapters for such chapter). Subchapter K of chapter 1 is amended by striking part IV (and by striking the item relating to such part in the table of parts for such subchapter). Chapter 63 is amended by striking subchapter D (and by striking the item relating to such subchapter in the table of subchapters for such chapter). The amendments made by this section shall apply to returns filed after December 31, 2014.
Chapter 63, as amended by the preceding provisions of this Act, is amended by inserting after subchapter B the following new subchapter: Part I—In general Part II—Partnership adjustments Part III—Procedure Part IV—Definitions and special rules Sec. 6221. Determination at partnership level. Sec. 6222. Partner’s return must be consistent with partnership return. Sec. 6223. Designation of partnership representative. Items of income, gain, loss, deduction, or credit of a partnership for a partnership taxable year (and any partner’s distributive share thereof) shall be audited, any tax attributable thereto shall be assessed and collected, and the applicability of any penalty, addition to tax, or additional amount which relates to an adjustment to any such item or share shall be determined, at the partnership level pursuant to this subchapter.
This subchapter shall not apply with respect to any partnership for any taxable year if— the partnership elects the application of this subsection for such taxable year, the partnership has 100 or fewer partners on the last day of such taxable year, each of the partners of such partnership is an individual, a C corporation (other than a real estate investment trust or a regulated investment company), any foreign entity that would be treated as a C corporation were it domestic, or an estate of a deceased partner, the election— is made with a timely filed return for such taxable year, and includes (in the manner prescribed by the Secretary) a disclosure of the name and taxpayer identification number of each partner of such partnership, and the partnership notifies each such partner of such election in the manner prescribed by the Secretary.
For purposes of paragraph (4)(B), the Secretary may provide for alternative identification of any foreign partners. A partner of any partnership shall, on the partner’s return, treat each item of income, gain, loss, deduction, or credit attributable to such partnership in a manner which is consistent with the treatment of such income, gain, loss, deduction, or credit on the partnership return. Any underpayment of tax by a partner by reason of failing to comply with the requirements of subsection
(a)shall be assessed and collected in the same manner as if such underpayment were on account of a mathematical or clerical error appearing on the partner’s return. Paragraph
(2)of section 6213(b) shall not apply to any assessment of an underpayment referred to in the preceding sentence. For addition to tax in the case of partner’s disregard of the requirements of this section, see part II of subchapter A of chapter 68. Each partnership shall designate (in the manner prescribed by the Secretary) a partner (or other person) as the partnership representative who shall have the sole authority to act on behalf of the partnership under this subchapter. In any case in which such a designation is not in effect, the Secretary may select any partner as the partnership representative. A partnership and all partners of such partnership shall be bound— by actions taken under this subchapter by the partnership, and by any decision in a proceeding brought under this subchapter. Sec. 6225. Partnership adjustment by Secretary. Sec. 6226. Administrative adjustment request by partnership. In the case of any 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— the partnership shall pay any imputed underpayment with respect to such adjustment in the adjustment year as provided in section 6232, and any imputed overpayment shall be taken into account by the partnership in the adjustment year as a reduction in non-separately stated income or an increase in non-separately stated loss (whichever is appropriate) under section 702(a)(8). For purposes of this subchapter— Except as provided in subsection (c), any imputed underpayment or imputed overpayment with respect to any partnership adjustment for any reviewed year shall be determined— by netting all adjustments of items of income, gain, loss, or deduction and multiplying such net amount by the highest rate of tax in effect for the reviewed year under section 1 or 11, by treating any net increase or decrease in loss under subparagraph
(A)as a decrease or increase, respectively, in income, and by taking into account any adjustments to items of credit as an increase or decrease, as the case may be, in the amount determined under subparagraph (A). In the case of any adjustment which reallocates the distributive share of any item from one partner to another, such adjustment shall be taken into account under paragraph
(1)by disregarding— any decrease in any item of income or gain, and any increase in any item of deduction, loss, or credit. The Secretary shall establish procedures under which the imputed underpayment amount may be modified consistent with the requirements of this subsection. Such procedures shall provide that if— one or more partners file returns for the taxable year of the partners which includes the end of the reviewed year of the partnership, such returns take into account all adjustments under subsection
(a)properly allocable to such partners (and for any other taxable year with respect to which any tax attribute is affected by reason of such adjustments), and payment of any tax due is included with such return, then the imputed underpayment amount shall be determined without regard to the portion of the adjustments so taken into account. In the case of any adjustment which reallocates the distributive share of any item from one partner to another, paragraph
(2)shall apply only if returns are filed by all partners affected by such adjustment. Anything required to be submitted pursuant to paragraph
(1)shall be submitted to the Secretary not later than the close the 180-day period beginning on the date on which the notice of a proposed partnership adjustment is mailed under section 6231 unless such period is extended with the consent of the Secretary. Any modification of the imputed underpayment amount under this subsection shall be made only upon approval of such modification by the Secretary. For purposes of this subchapter— The term reviewed year means the partnership taxable year to which the item being adjusted relates. The term adjustment year means the partnership taxable year in which— in the case of an adjustment pursuant to the decision of a court in a proceeding brought under section 6234, such decision becomes final, in the case of an administrative adjustment request under section 6226, such administrative adjustment request is made, or in any other case, notice of the final partnership adjustment is mailed under section 6231. A partnership may file a request for an administrative adjustment in the amount of any item of income, gain, loss, deduction, or credit of the partnership for any partnership taxable year, but only to the extent such adjustment results in an imputed underpayment. Any adjustment under subsection
(a)shall be determined and taken into account by the partnership under rules similar to the rules of section 6225 (other than subsection
(c)thereof) for the partnership taxable year in which the administrative adjustment request is made. A partnership may not file such a request— more than 3 years after the later of— the date on which the partnership return for such year is filed, or the last day for filing the partnership return for such year (determined without regard to extensions), and after any notice of an administrative proceeding with respect to the taxable year is mailed under section 6231. Sec. 6231. Notice of proceedings and adjustment. Sec. 6232. Assessment, collection, and payment. Sec. 6233. Penalties and interest. Sec. 6234. Judicial review of partnership adjustment. Sec. 6235. Period of limitations on making adjustments. The Secretary shall mail to the partnership and the partnership representative— notice of any administrative proceeding initiated at the partnership level with respect to an adjustment of any item of income, gain, loss, deduction, or credit of a partnership for a partnership taxable year, or any partner’s distributive share thereof, notice of any proposed partnership adjustment resulting from such proceeding, and notice of any final partnership adjustment resulting from such proceeding. Any notice of a final partnership adjustment shall not be mailed earlier than 180 days after the date on which the notice of the proposed partnership adjustment is mailed. Such notices shall be sufficient if mailed to the last known address of the partnership representative or the partnership (even if the partnership has terminated its existence). The first sentence shall apply to any proceeding with respect to an administrative adjustment request filed by a partnership under section 6226. If the Secretary mails a notice of a final partnership adjustment to any partnership for any partnership taxable year and the partnership files a petition under section 6234 with respect to such notice, in the absence of a showing of fraud, malfeasance, or misrepresentation of a material fact, the Secretary shall not mail another such notice to such partnership with respect to such taxable year. The Secretary may, with the consent of the partnership, rescind any notice of a partnership adjustment mailed to such partnership. Any notice so rescinded shall not be treated as a notice of a partnership adjustment for purposes of this subchapter, and the taxpayer shall have no right to bring a proceeding under section 6234 with respect to such notice. Any imputed underpayment— shall be assessed and collected in the same manner as if it were a tax imposed for the adjustment year by subtitle A, and shall be paid on or before the return due date for the adjustment year. Except as otherwise provided in this chapter, no assessment of a deficiency may be made (and no levy or proceeding in any court for the collection of any amount resulting from such adjustment may be made, begun or prosecuted) before— the close of the 90th day after the day on which a notice of a final partnership adjustment was mailed, and if a petition is filed under section 6234 with respect to such notice, the decision of the court has become final. Notwithstanding section 7421(a), any action which violates subsection
(b)may be enjoined in the proper court, including the Tax Court. The Tax Court shall have no jurisdiction to enjoin any action under this subsection unless a timely petition has been filed under section 6234 and then only in respect of the adjustments that are the subject of such petition. If the partnership is notified that, on account of a mathematical or clerical error appearing on the partnership return, an adjustment to a partnership item is required, rules similar to the rules of paragraphs
(1)and
(2)of section 6213(b) shall apply to such adjustment. If a partnership is a partner in another partnership, any adjustment on account of such partnership’s failure to comply with the requirements of section 6222(a) with respect to its interest in such other partnership shall be treated as an adjustment referred to in subparagraph (A), except that paragraph
(2)of section 6213(b) shall not apply to such adjustment. The partnership may at any time (whether or not any notice of partnership adjustment has been issued), by a signed notice in writing filed with the Secretary, waive the restrictions provided in subsection
(b)on the making of any partnership adjustment. If no proceeding under section 6234 is begun with respect to any notice of a final partnership adjustment during the 90-day period described in subsection
(b)thereof, the amount for which the partnership is liable under section 6225 shall not exceed the amount determined in accordance with such notice. In the case of an imputed underpayment with respect to a partnership adjustment for a reviewed year, the partnership— shall pay to the Secretary interest computed under paragraph (2), and shall be liable for any penalty, addition to tax, or additional amount as provided in paragraph (3). The interest computed under this paragraph with respect to any partnership adjustment is the interest which would be determined under chapter 67— on the imputed underpayment determined with respect to such adjustment, for the period beginning on the day after the return due date for the reviewed year and ending on the return due date for the adjustment year (or, if earlier, the date payment of the imputed underpayment is made). Proper adjustments in the amount determined under the preceding sentence shall be made for adjustments required for partnership taxable years after the reviewed year and before the adjustment year by reason of such partnership adjustment. A partnership shall be liable for any penalty, addition to tax, or additional amount for which it would have been liable if such partnership had been an individual subject to tax under chapter 1 for the reviewed year and the imputed underpayment were an actual underpayment (or understatement) for such year. In the case of any failure to pay an imputed underpayment on the date prescribed therefor, the partnership shall be liable— for interest as determined under paragraph (2), and for any penalty, addition to tax, or additional amount as determined under paragraph (3). Interest determined under this paragraph is the interest that would be determined by treating the imputed underpayment as an underpayment of tax imposed in the adjustment year. Penalties, additions to tax, or additional amounts determined under this paragraph are the penalties, additions to tax, or additional amounts that would be determined— by applying section 6651(a)(2) to such failure to pay. by treating the imputed underpayment as an underpayment of tax for purposes of part II of subchapter A of chapter 68. Within 90 days after the date on which a notice of a final partnership adjustment is mailed under section 6231 with respect to any partnership taxable year, the partnership may file a petition for a readjustment for such taxable year with— the Tax Court, the district court of the United States for the district in which the partnership’s principal place of business is located, or the Claims Court. A readjustment petition under this section may be filed in a district court of the United States or the Claims Court only if the partnership filing the petition deposits with the Secretary, on or before the date the petition is filed, the amount of the imputed underpayment (as of the date of the filing of the petition) if the partnership adjustment was made as provided by the notice of final partnership adjustment. The court may by order provide that the jurisdictional requirements of this paragraph are satisfied where there has been a good faith attempt to satisfy such requirement and any shortfall of the amount required to be deposited is timely corrected. Any amount deposited under paragraph (1), while deposited, shall not be treated as a payment of tax for purposes of this title (other than chapter 67). A court with which a petition is filed in accordance with this section shall have jurisdiction to determine all items of income, gain, loss, deduction, or credit of the partnership for the partnership taxable year to which the notice of final partnership adjustment relates, the proper allocation of such items among the partners, and the applicability of any penalty, addition to tax, or additional amount for which the partnership may be liable under this subchapter. Any determination by a court under this section shall have the force and effect of a decision of the Tax Court or a final judgment or decree of the district court or the Claims Court, as the case may be, and shall be reviewable as such. The date of any such determination shall be treated as being the date of the court’s order entering the decision. If an action brought under this section is dismissed other than by reason of a rescission under section 6231(c), the decision of the court dismissing the action shall be considered as its decision that the notice of final partnership adjustment is correct, and an appropriate order shall be entered in the records of the court. Except as otherwise provided in this section, no adjustment under this subpart for any partnership taxable year may be made after the date which is 3 years after the latest of— the date on which the partnership return for such taxable year was filed, the return due date for the taxable year, or the date on which the partnership filed an administrative adjustment request with respect to such year under section 6226. The period described in subsection
(a)(including an extension period under this subsection) may be extended by an agreement entered into by the Secretary and the partnership before the expiration of such period. In the case of a false or fraudulent partnership return with intent to evade tax, the adjustment may be made at any time. If any partnership omits from gross income an amount properly includible therein and such amount is described in section 6501(e)(1)(A), subsection
(a)shall be applied by substituting 6 years for 3 years . In the case of a failure by a partnership to file a return for any taxable year, the adjustment may be made at any time. For purposes of this section, a return executed by the Secretary under subsection
(b)of section 6020 on behalf of the partnership shall not be treated as a return of the partnership. If notice of a final partnership adjustment with respect to any taxable year is mailed under section 6231, the running of the period specified in subsection
(a)(as modified by the other provisions of this section) shall be suspended— for the period during which an action may be brought under section 6234 (and, if a petition is filed under such section with respect to such notice, until the decision of the court becomes final), and for 1 year thereafter. Sec. 6241. Definitions and special rules. For purposes of this subchapter— The term partnership means any partnership required to file a return under section 6031(a). The term partner means— a partner in the partnership, and any other person whose income tax liability under subtitle A is determined in whole or in part by taking into account directly or indirectly income, gain, deduction, or loss of the partnership. The term partnership adjustment means any adjustment in the amount of any item of income, gain, loss, deduction, or credit of a partnership, or any partner’s distributive share thereof. The term return due date means, with respect to the taxable year, the date prescribed for filing the partnership return for such taxable year (determined without regard to extensions). The partnership and any partner of the partnership shall be jointly and severally liable for any imputed underpayment and any penalty, addition to tax, or additional amount attributable thereto. The period for assessment of an imputed underpayment with respect to a partner of a partnership shall not expire earlier than 3 years after the date on which an assessment of such imputed underpayment was made with respect to the partnership. A person shall be treated as partner of the partnership if such person is a partner of such partnership at any time during the reviewed or adjustment year. No deduction shall be allowed under subtitle A for any payment required to be made by a partnership under this subchapter. Except to the extent otherwise provided in regulations, in the case of any partnership the partnership representative of which resides outside the United States or the books of which are maintained outside the United States, no deduction, loss, or credit shall be allowable to any partner unless section 6031 is complied with for the partnership’s taxable year in which such deduction, loss, or credit arose at such time as the Secretary prescribes by regulations. For purposes of sections 6234, a principal place of business located outside the United States shall be treated as located in the District of Columbia. The running of any period of limitations provided in this subchapter on making a partnership adjustment (or provided by section 6501 or 6502 on the assessment or collection of any imputed underpayment determined under this subchapter) shall, in a case under title 11 of the United States Code, be suspended during the period during which the Secretary is prohibited by reason of such case from making the adjustment (or assessment or collection) and— for adjustment or assessment, 60 days thereafter, and for collection, 6 months thereafter. A rule similar to the rule of section 6213(f)(2) shall apply for purposes of section 6232(b). The running of the period specified in section 6234 shall, in a case under title 11 of the United States Code, be suspended during the period during which the partnership is prohibited by reason of such case from filing a petition under section 6234 and for 60 days thereafter. . The table of subchapters for chapter 63 is amended by inserting after the item relating to subchapter B the following new items: Subchapter C. Treatment of partnerships. . Section 6422 is amended by striking paragraph (12). Section 6501(n) is amended by striking paragraphs
(2)and
(3)and by striking and all that follows through Cross references For period of limitations and inserting . Cross reference.— For period of limitations Section 6503(a)(1) is amended by striking (or section 6229 and all that follows through of section 6230(a)) . Section 6504 is amended by striking paragraph (11). Section 6511 is amended by striking subsection (g). Section 6512(b)(3) is amended by striking the second sentence. Section 6515 is amended by striking paragraph (6). Section 6601(c) is amended by striking the last sentence. Section 7421(a) is amended by striking 6225(b), 6246(b) and inserting 6232(c) . Section 7422 is amended by striking subsection (h). Section 7459(c) is amended by striking section 6226 and all that follows through or 6252 and inserting section 6234 . Section 7482(b)(1) is amended— in subparagraph (E), by striking section 6226, 6228, 6247, or 6252 and inserting section 6234 , by striking subparagraph (F), by striking or at the end of subparagraph
(E)and inserting a period, and by inserting or at the end of subparagraph (D), and in the last sentence, by striking section 6226, 6228(a), or 6234(c) and inserting section 6234 . Section 7485(b) is amended by striking section 6226, 6228(a), 6247, or 6252 and inserting section 6234 . The amendments made by this section shall apply to returns filed for partnership taxable years ending after December 31, 2014, except that a partnership may elect (at such time and in such form and manner as the Secretary of the Treasury may prescribe) for such amendments to apply to any return of the partnership filed for partnership taxable years ending after the date of the enactment of this Act and before January 1, 2015.