
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: 26USC6242]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                Subtitle F--Procedure and Administration
 
                         CHAPTER 63--ASSESSMENT
 
         Subchapter D--Treatment of Electing Large Partnerships
 
         PART I--TREATMENT OF PARTNERSHIP ITEMS AND ADJUSTMENTS
 
Sec. 6242. Procedures for taking partnership adjustments into 
        account
        

(a) Adjustments flow through to partners for year in which adjustment 
        takes effect

                           (1) In general

        If any partnership adjustment with respect to any partnership 
    item takes effect (within the meaning of subsection (d)(2)) during 
    any partnership taxable year and if an election under paragraph (2) 
    does not apply to such adjustment, such adjustment shall be taken 
    into account in determining the amount of such item for the 
    partnership taxable year in which such adjustment takes effect. In 
    applying this title to any person who is (directly or indirectly) a 
    partner in such partnership during such partnership taxable year, 
    such adjustment shall be treated as an item actually arising during 
    such taxable year.

               (2) Partnership liable in certain cases

        If--
            (A) a partnership elects under this paragraph to not take an 
        adjustment into account under paragraph (1),
            (B) a partnership does not make such an election but in 
        filing its return for any partnership taxable year fails to take 
        fully into account any partnership adjustment as required under 
        paragraph (1), or
            (C) any partnership adjustment involves a reduction in a 
        credit which exceeds the amount of such credit determined for 
        the partnership taxable year in which the adjustment takes 
        effect,

    the partnership shall pay to the Secretary an amount determined by 
    applying the rules of subsection (b)(4) to the adjustments not so 
    taken into account and any excess referred to in subparagraph (C).

            (3) Offsetting adjustments taken into account

        If a partnership adjustment requires another adjustment in a 
    taxable year after the adjusted year and before the partnership 
    taxable year in which such partnership adjustment takes effect, such 
    other adjustment shall be taken into account under this subsection 
    for the partnership taxable year in which such partnership 
    adjustment takes effect.

                    (4) Coordination with part II

        Amounts taken into account under this subsection for any 
    partnership taxable year shall continue to be treated as adjustments 
    for the adjusted year for purposes of determining whether such 
    amounts may be readjusted under part II.

(b) Partnership liable for interest and penalties

                           (1) In general

        If a partnership adjustment takes effect during any partnership 
    taxable year and such adjustment results in an imputed underpayment 
    for the adjusted year, the partnership--
            (A) shall pay to the Secretary interest computed under 
        paragraph (2), and
            (B) shall be liable for any penalty, addition to tax, or 
        additional amount as provided in paragraph (3).

               (2) Determination of amount of interest

        The interest computed under this paragraph with respect to any 
    partnership adjustment is the interest which would be determined 
    under chapter 67--
            (A) on the imputed underpayment determined under paragraph 
        (4) with respect to such adjustment,
            (B) for the period beginning on the day after the return due 
        date for the adjusted year and ending on the return due date for 
        the partnership taxable year in which such adjustment takes 
        effect (or, if earlier, in the case of any adjustment to which 
        subsection (a)(2) applies, the date on which the payment under 
        subsection (a)(2) is made).

    Proper adjustments in the amount determined under the preceding 
    sentence shall be made for adjustments required for partnership 
    taxable years after the adjusted year and before the year in which 
    the partnership adjustment takes effect by reason of such 
    partnership adjustment.

                            (3) Penalties

        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 adjusted year and the imputed underpayment determined under 
    paragraph (4) were an actual underpayment (or understatement) for 
    such year.

                      (4) Imputed underpayment

        For purposes of this subsection, the imputed underpayment 
    determined under this paragraph with respect to any partnership 
    adjustment is the underpayment (if any) which would result--
            (A) by netting all adjustments to items of income, gain, 
        loss, or deduction and by treating any net increase in income as 
        an underpayment equal to the amount of such net increase 
        multiplied by the highest rate of tax in effect under section 1 
        or 11 for the adjusted year, and
            (B) by taking adjustments to credits into account as 
        increases or decreases (whichever is appropriate) in the amount 
        of tax.

    For purposes of the preceding sentence, any net decrease in a loss 
    shall be treated as an increase in income and a similar rule shall 
    apply to a net increase in a loss.

(c) Administrative provisions

                           (1) In general

        Any payment required by subsection (a)(2) or (b)(1)(A)--
            (A) shall be assessed and collected in the same manner as if 
        it were a tax imposed by subtitle C, and
            (B) shall be paid on or before the return due date for the 
        partnership taxable year in which the partnership adjustment 
        takes effect.

                            (2) Interest

        For purposes of determining interest, any payment required by 
    subsection (a)(2) or (b)(1)(A) shall be treated as an underpayment 
    of tax.

                            (3) Penalties

        (A) In general

            In the case of any failure by any partnership to pay on the 
        date prescribed therefor any amount required by subsection 
        (a)(2) or (b)(1)(A), there is hereby imposed on such partnership 
        a penalty of 10 percent of the underpayment. For purposes of the 
        preceding sentence, the term ``underpayment'' means the excess 
        of any payment required under this section over the amount (if 
        any) paid on or before the date prescribed therefor.

        (B) Accuracy-related and fraud penalties made applicable

            For purposes of part II of subchapter A of chapter 68, any 
        payment required by subsection (a)(2) shall be treated as an 
        underpayment of tax.

(d) Definitions and special rules

    For purposes of this section--

                     (1) Partnership adjustment

        The term ``partnership adjustment'' means any adjustment in the 
    amount of any partnership item of an electing large partnership.

                  (2) When adjustment takes effect

        A partnership adjustment takes effect--
            (A) in the case of an adjustment pursuant to the decision of 
        a court in a proceeding brought under part II, when such 
        decision becomes final,
            (B) in the case of an adjustment pursuant to any 
        administrative adjustment request under section 6251, when such 
        adjustment is allowed by the Secretary, or
            (C) in any other case, when such adjustment is made.

                          (3) Adjusted year

        The term ``adjusted year'' means the partnership taxable year to 
    which the item being adjusted relates.

                         (4) Return due date

        The term ``return due date'' means, with respect to any taxable 
    year, the date prescribed for filing the partnership return for such 
    taxable year (determined without regard to extensions).

           (5) Adjustments involving changes in character

        Under regulations, appropriate adjustments in the application of 
    this section shall be made for purposes of taking into account 
    partnership adjustments which involve a change in the character of 
    any item of income, gain, loss, or deduction.

(e) Payments nondeductible

    No deduction shall be allowed under subtitle A for any payment 
required to be made by an electing large partnership under this section.

(Added Pub. L. 105-34, title XII, Sec. 1222(a), Aug. 5, 1997, 111 Stat. 
1010.)


                            Prior Provisions

    A prior section 6242, added Pub. L. 97-354, Sec. 4(a), Oct. 19, 
1982, 96 Stat. 1691, directed that shareholder's return be consistent 
with corporate return, prior to repeal by Pub. L. 104-188, title I, 
Secs. 1307(c)(1), 1317(a), Aug. 20, 1996, 110 Stat. 1781, 1787, 
applicable to taxable years beginning after Dec. 31, 1996.
    A prior section 6243, added Pub. L. 97-354, Sec. 4(a), Oct. 19, 
1982, 96 Stat. 1691, directed that shareholders be notified of 
proceedings and given opportunity to participate, prior to repeal by 
Pub. L. 104-188, title I, Secs. 1307(c)(1), 1317(a), Aug. 20, 1996, 110 
Stat. 1781, 1787, applicable to taxable years beginning after Dec. 31, 
1996.
    A prior section 6244, added Pub. L. 97-354, Sec. 4(a), Oct. 19, 
1982, 96 Stat. 1691, directed that certain provisions of subchapter C 
apply to subchapter S items, prior to repeal by Pub. L. 104-188, title 
I, Secs. 1307(c)(1), 1317(a), Aug. 20, 1996, 110 Stat. 1781, 1787, 
applicable to taxable years beginning after Dec. 31, 1996.

                  Section Referred to in Other Sections

    This section is referred to in sections 6240, 6241, 6246, 6247, 6255 
of this title.
