Taxing Lessons From Court Decisions

Decisions — TEFRA and TMPs and FPAAs and the IRS, too

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Partnerships with more than 10 partners are subject to the rules of the Tax Equity and Fiscal Responsibility Act of 1982, known as TEFRA. One TEFRA requirement is that the partnership appoint a tax matters partner (TMP) who is responsible for receiving IRS notices, documents and orders. TEFRA rules allow the IRS to work with one partner, and file one judicial proceeding regarding partnership matters.

When an examination is complete, the IRS sends the TMP a final partnership administrative adjustment (FPAA), which spells out proposed changes to the partnership tax return. The notice to the TMP marks the start of the time period a TMP has to file a tax court petition.

Typically, IRS notices must be sent to a taxpayer’s last known address. Your last known address is the address on your most recently filed and properly processed return, unless you give the IRS clear and concise notification of a different address. (see Treasury Regulation 301.6216-2).

Those rules don’t apply to FPAAs, as the taxpayer in T.C. Memo. 2013-168 (Taurus FX Partners, LLC) discovered.

In the case of a FPAA, the IRS uses the partnership return as the starting point for identifying where to mail notices, and only has to update that information as required by the regulations. The regulations require you to make updates by submitting a written statement, generally to the service center where the partnership return was filed. The statement must follow specific guidelines (see Internal Revenue Code section 301.6223(c)-1, Procedural & Administrative Regulations).

Why are the rules different? According to the tax court, unlike a corporate or an individual income tax proceeding where the examination is directly of the taxpayer’s return, a TEFRA proceeding is conducted at the partnership level, and yet the partnership is not liable for the tax. The partners who are ultimately liable for the tax can change from year to year. That means adjustments resulting from a partnership proceeding relating to one taxable year may affect a completely different set of taxpayers from those who owned an interest in that same partnership in another year. As a result, updating address information from a subsequent year’s return as is done in deficiency procedures puts the IRS in peril of notifying the wrong people.

Taxing Lesson: When you change your address, make sure you CYA (change your address) with the IRS.

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