
From the U.S. Code Online via GPO Access
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[Laws in effect as of January 2, 2001]
[Document not affected by Public Laws enacted between
  January 2, 2001 and January 28, 2002]
[CITE: 26USC6231]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                Subtitle F--Procedure and Administration
 
                         CHAPTER 63--ASSESSMENT
 
            Subchapter C--Tax Treatment of Partnership Items
 
Sec. 6231. Definitions and special rules


(a) Definitions

    For purposes of this subchapter--

                           (1) Partnership

        (A) In general

            Except as provided in subparagraph (B), the term 
        ``partnership'' means any partnership required to file a return 
        under section 6031(a).

        (B) Exception for small partnerships

            (i) In general

                The term ``partnership'' shall not include any 
            partnership having 10 or fewer partners each of whom is an 
            individual (other than a nonresident alien), a C 
            corporation, or an estate of a deceased partner. For 
            purposes of the preceding sentence, a husband and wife (and 
            their estates) shall be treated as 1 partner.
            (ii) Election to have subchapter apply

                A partnership (within the meaning of subparagraph (A)) 
            may for any taxable year elect to have clause (i) not apply. 
            Such election shall apply for such taxable year and all 
            subsequent taxable years unless revoked with the consent of 
            the Secretary.

                             (2) Partner

        The term ``partner'' means--
            (A) a partner in the partnership, and
            (B) any other person whose income tax liability under 
        subtitle A is determined in whole or in part by taking into 
        account directly or indirectly partnership items of the 
        partnership.

                        (3) Partnership item

        The term ``partnership item'' means, with respect to a 
    partnership, any item required to be taken into account for the 
    partnership's taxable year under any provision of subtitle A to the 
    extent regulations prescribed by the Secretary provide that, for 
    purposes of this subtitle, such item is more appropriately 
    determined at the partnership level than at the partner level.

                       (4) Nonpartnership item

        The term ``nonpartnership item'' means an item which is (or is 
    treated as) not a partnership item.

                          (5) Affected item

        The term ``affected item'' means any item to the extent such 
    item is affected by a partnership item.

                    (6) Computational adjustment

        The term ``computational adjustment'' means the change in the 
    tax liability of a partner which properly reflects the treatment 
    under this subchapter of a partnership item. All adjustments 
    required to apply the results of a proceeding with respect to a 
    partnership under this subchapter to an indirect partner shall be 
    treated as computational adjustments.

                       (7) Tax matters partner

        The tax matters partner of any partnership is--
            (A) the general partner designated as the tax matters 
        partner as provided in regulations, or
            (B) if there is no general partner who has been so 
        designated, the general partner having the largest profits 
        interest in the partnership at the close of the taxable year 
        involved (or, where there is more than 1 such partner, the 1 of 
        such partners whose name would appear first in an alphabetical 
        listing).

    If there is no general partner designated under subparagraph (A) and 
    the Secretary determines that it is impracticable to apply 
    subparagraph (B), the partner selected by the Secretary shall be 
    treated as the tax matters partner. The Secretary shall, within 30 
    days of selecting a tax matters partner under the preceding 
    sentence, notify all partners required to receive notice under 
    section 6223(a) of the name and address of the person selected.

                         (8) Notice partner

        The term ``notice partner'' means a partner who, at the time in 
    question, would be entitled to notice under subsection (a) of 
    section 6223 (determined without regard to subsections (b)(2) and 
    (e)(1)(B) thereof).

                        (9) Pass-thru partner

        The term ``pass-thru partner'' means a partnership, estate, 
    trust, S corporation, nominee, or other similar person through whom 
    other persons hold an interest in the partnership with respect to 
    which proceedings under this subchapter are conducted.

                        (10) Indirect partner

        The term ``indirect partner'' means a person holding an interest 
    in a partnership through 1 or more pass-thru partners.

                        (11) 5-percent group

        A 5-percent group is a group of partners who for the partnership 
    taxable year involved had profits interests which aggregated 5 
    percent or more.

                        (12) Husband and wife

        Except to the extent otherwise provided in regulations, a 
    husband and wife who have a joint interest in a partnership shall be 
    treated as 1 person.

(b) Items cease to be partnership items in certain cases

                           (1) In general

        For purposes of this subchapter, the partnership items of a 
    partner for a partnership taxable year shall become nonpartnership 
    items as of the date--
            (A) the Secretary mails to such partner a notice that such 
        items shall be treated as nonpartnership items,
            (B) the partner files suit under section 6228(b) after the 
        Secretary fails to allow an administrative adjustment request 
        with respect to any of such items,
            (C) the Secretary enters into a settlement agreement with 
        the partner with respect to such items, or
            (D) such change occurs under subsection (e) of section 6223 
        (relating to effect of Secretary's failure to provide notice) or 
        under subsection (c) of this section.

           (2) Circumstances in which notice is permitted

        The Secretary may mail the notice referred to in subparagraph 
    (A) of paragraph (1) to a partner with respect to partnership items 
    for a partnership taxable year only if--
            (A) such partner--
                (i) has complied with subparagraph (B) of section 
            6222(b)(1) (relating to notification of inconsistent 
            treatment) with respect to one or more of such items, and
                (ii) has not, as of the date on which the Secretary 
            mails the notice, filed a request for administrative 
            adjustments which would make the partner's treatment of the 
            item or items with respect to which the partner complied 
            with subparagraph (B) of section 6222(b)(1) consistent with 
            the treatment of such item or items on the partnership 
            return, or

            (B)(i) such partner has filed a request under section 
        6227(c) \1\ for administrative adjustment of one or more of such 
        items, and
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    \1\ See References in Text note below.
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            (ii) the adjustments requested would not make such partner's 
        treatment of such items consistent with the treatment of such 
        items on the partnership return.

     (3) Notice must be mailed before beginning of partnership 
                                 proceeding

        Any notice to a partner under subparagraph (A) of paragraph (1) 
    with respect to partnership items for a partnership taxable year 
    shall be mailed before the day on which the Secretary mails to the 
    tax matters partner a notice of the beginning of an administrative 
    proceeding at the partnership level with respect to such items.

(c) Regulations with respect to certain special enforcement areas

                   (1) Applicability of subsection

        This subsection applies in the case of--
            (A) assessments under section 6851 (relating to termination 
        assessments of income tax) or section 6861 (relating to jeopardy 
        assessments of income, estate, gift, and certain excise taxes),
            (B) criminal investigations,
            (C) indirect methods of proof of income,
            (D) foreign partnerships, and
            (E) other areas that the Secretary determines by regulation 
        to present special enforcement considerations.

          (2) Items may be treated as nonpartnership items

        To the extent that the Secretary determines and provides by 
    regulations that to treat items as partnership items will interfere 
    with the effective and efficient enforcement of this title in any 
    case described in paragraph (1), such items shall be treated as 
    nonpartnership items for purposes of this subchapter.

                          (3) Special rules

        The Secretary may prescribe by regulation such special rules as 
    the Secretary determines to be necessary to achieve the purposes of 
    this subchapter in any case described in paragraph (1).

(d) Time for determining partner's profits interest in partnership

                           (1) In general

        For purposes of section 6223(b) (relating to special rules for 
    partnerships with more than 100 partners) and paragraph (11) of 
    subsection (a) (relating to 5-percent group), the interest of a 
    partner in the profits of a partnership for a partnership taxable 
    year shall be determined--
            (A) in the case of a partner whose entire interest in the 
        partnership is disposed of during such partnership taxable year, 
        as of the moment immediately before such disposition, or
            (B) in the case of any other partner, as of the close of the 
        partnership taxable year.

                        (2) Indirect partners

        The Secretary shall prescribe regulations consistent with the 
    principles of paragraph (1) to be applied in the case of indirect 
    partners.

(e) Effect of judicial decisions in certain proceedings

                 (1) Determinations at partner level

        No judicial determination with respect to the income tax 
    liability of any partner not conducted under this subchapter shall 
    be a bar to any adjustment in such partner's income tax liability 
    resulting from--
            (A) a proceeding with respect to partnership items under 
        this subchapter, or
            (B) a proceeding with respect to items which become 
        nonpartnership items--
                (i) by reason of 1 or more of the events described in 
            subsection (b), and
                (ii) after the appropriate time for including such items 
            in any other proceeding with respect to nonpartnership 
            items.

                (2) Proceedings under section 6228(a)

        No judicial determination in any proceeding under subsection (a) 
    of section 6228 with respect to any partnership item shall be a bar 
    to any adjustment in any other partnership item.

(f) Special rule for deductions, losses, and credits of foreign 
        partnerships

    Except to the extent otherwise provided in regulations, in the case 
of any partnership the tax matters partner 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.

(g) Partnership return to be determinative of whether subchapter applies

              (1) Determination that subchapter applies

        If, on the basis of a partnership return for a taxable year, the 
    Secretary reasonably determines that this subchapter applies to such 
    partnership for such year but such determination is erroneous, then 
    the provisions of this subchapter are hereby extended to such 
    partnership (and its items) for such taxable year and to partners of 
    such partnership.

          (2) Determination that subchapter does not apply

        If, on the basis of a partnership return for a taxable year, the 
    Secretary reasonably determines that this subchapter does not apply 
    to such partnership for such year but such determination is 
    erroneous, then the provisions of this subchapter shall not apply to 
    such partnership (and its items) for such taxable year or to 
    partners of such partnership.

(Added Pub. L. 97-248, title IV, Sec. 402(a), Sept. 3, 1982, 96 Stat. 
663; amended Pub. L. 98-369, div. A, title VII, Sec. 714(p)(2)(B)-(D), 
(I), July 18, 1984, 98 Stat. 964, 965; Pub. L. 105-34, title XI, 
Sec. 1141(b), title XII, Secs. 1232(a), 1234(a), Aug. 5, 1997, 111 Stat. 
981, 1023, 1024; Pub. L. 105-206, title III, Sec. 3507(a), July 22, 
1998, 112 Stat. 772.)

                       References in Text

    Section 6227(c) of this title, referred to in subsec. (b)(2)(B)(i), 
was redesignated section 6227(d) of this title by Pub. L. 105-34, title 
XII, Sec. 1236(a), Aug. 5, 1997, 111 Stat. 1025.


                               Amendments

    1998--Subsec. (a)(7). Pub. L. 105-206 inserted at end ``The 
Secretary shall, within 30 days of selecting a tax matters partner under 
the preceding sentence, notify all partners required to receive notice 
under section 6223(a) of the name and address of the person selected.''
    1997--Subsec. (a)(1)(B)(i). Pub. L. 105-34, Sec. 1234(a), reenacted 
heading of cl. (i) without change and amended text generally. Prior to 
amendment, text read as follows: ``The term `partnership' shall not 
include any partnership if--
        ``(I) such partnership has 10 or fewer partners each of whom is 
    a natural person (other than a nonresident alien) or an estate, and
        ``(II) each partner's share of each partnership item is the same 
    as his share of every other item.
For purposes of the preceding sentence, a husband and wife (and their 
estates) shall be treated as 1 partner.''
    Subsec. (f). Pub. L. 105-34, Sec. 1141(b), substituted ``deductions, 
losses, and'' for ``losses and'' in subsec. heading and ``deduction, 
loss, or'' for ``loss or'' in two places in text.
    Subsec. (g). Pub. L. 105-34, Sec. 1232(a), added subsec. (g).
    1984--Subsec. (a)(9). Pub. L. 98-369, Sec. 714(p)(2)(B), substituted 
``S corporation'' for ``electing small business corporation''.
    Subsec. (b)(2)(B). Pub. L. 98-369, Sec. 714(p)(2)(I), substituted 
section ``6227(c)'' for ``6227(b)''.
    Subsec. (d)(1)(A). Pub. L. 98-369, Sec. 714(p)(2)(C), amended 
subpar. (A) generally, substituting ``disposed of'' and ``disposition'' 
for ``liquidated, sold, or exchanged'' and ``liquidation, sale, or 
exchange'', respectively.
    Subsec. (f). Pub. L. 98-369, Sec. 714(p)(2)(D), substituted ``such 
loss or credit'' for ``such deduction or credit''.


                    Effective Date of 1998 Amendment

    Pub. L. 105-206, title III, Sec. 3507(b), July 22, 1998, 112 Stat. 
772, provided that: ``The amendment made by this section [amending this 
section] shall apply to selections of tax matters partners made by the 
Secretary of the Treasury after the date of the enactment of this Act 
[July 22, 1998].''


                    Effective Date of 1997 Amendment

    Amendment by section 1141(b) of Pub. L. 105-34 applicable to taxable 
years beginning after Aug. 5, 1997, see section 1141(c) of Pub. L. 105-
34, set out as a note under section 6031 of this title.
    Section 1232(b) of Pub. L. 105-34 provided that: ``The amendment 
made by this section [amending this section] shall apply to partnership 
taxable years ending after the date of the enactment of this Act [Aug. 
5, 1997].''
    Section 1234(b) of Pub. L. 105-34 provided that: ``The amendment 
made by this section [amending this section] shall apply to partnership 
taxable years ending after the date of the enactment of this Act [Aug. 
5, 1997].''


                    Effective Date of 1984 Amendment

    Amendment by Pub. L. 98-369 effective as if included in the 
provision of the Tax Equity and Fiscal Responsibility Act of 1982, Pub. 
L. 97-248, to which such amendment relates, see section 715 of Pub. L. 
98-369, set out as a note under section 31 of this title.


      Special Rule for Certain International Satellite Partnerships

    Section 406 of Pub. L. 97-248, as amended by Pub. L. 99-514, Sec. 2, 
Oct. 22, 1986, 100 Stat. 2095, provided that: ``Subchapter C of chapter 
63 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (relating 
to tax treatment of partnership items), section 6031 of such Code 
(relating to returns of partnership income), and section 6046A of such 
Code (relating to returns as to interest in foreign partnerships) shall 
not apply to the International Telecommunications Satellite 
Organization, the International Maritime Satellite Organization, and any 
organization which is a successor of either of such organizations.''

                  Section Referred to in Other Sections

    This section is referred to in sections 6226, 6227, 6228, 6229, 
6230, 6234, 6255, 6501, 6511, 6512, 6601, 7422 of this title.
