Partnership-related adjustments enter imputed underpayment computation

Plain-English summary

Chief Counsel addressed the interaction between the BBA centralized partnership audit rules and self-employment tax. It advised that every adjustment to a partnership-related item enters the imputed underpayment computation, even if the partners' correct reporting would not produce additional Chapter 1 income tax. Whether an item affects Chapter 1 instead bears on whether the item is a partnership-related item in the first place. The email also said Chief Counsel had no guidance on the interaction of the BBA rules and SECA, although the IRS's Large Business and International division had prepared internal material for agents.

Ruling snapshot

• Question: Does a partnership-related-item adjustment enter the BBA imputed underpayment computation if correct partner reporting would not increase Chapter 1 tax?
• Outcome: Advice given: yes, all partnership-related-item adjustments enter the computation.
• Key authorities: IRC § 6225 (UILC 6225B.01-00); BBA centralized partnership audit rules

Full text (IRS public release)

ID: CCA_2020072113211443
UILC: 6225B.01-00

Number: 202129012
Release Date: 7/23/2021
From: --------------------
Sent: Tuesday, July 21, 2020 1:21:14 PM
To: ---------------------
Cc: -------------------------------------------------------------------
Bcc:
Subject: RE: SECA cases - BBA

Hi ----------

All adjustments to partnership-related items (PRIs) go into the computation of the
imputed underpayment (IU) regardless of whether they would result in additional income
tax if properly reported by the partners. The issue of whether there is a chapter 1 impact
doesn’t go into consideration of whether an adjustment goes into the IU computation but
rather goes into the analysis of whether the item is a PRI or not. We are treating like 14
as a PRI (-------------------------------------------------------------------------------------------------------
-----------).

We do not have any guidance on BBA and SECA. I know LBI (IRS-side) has done some
for its agents. I don’t have the final versions, just the draft versions we reviewed.

Please let me know if you have any questions.

Thanks,

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