A partner's tax-exempt status is irrelevant to BBA election-out; only its entity type matters

Plain-English summary

This is brief Chief Counsel email advice about the centralized partnership audit rules enacted by the Bipartisan Budget Act of 2015 (the BBA). A partnership can elect out of the BBA regime only if all of its partners are eligible partners. The question was whether a partner's being tax-exempt or not-for-profit changes that analysis. The advice: it does not. Whether a partnership can elect out depends solely on what type of entity each partner is (for example, a C corporation), not on whether the entity is tax-exempt or not-for-profit, because a tax-exempt entity still has an underlying entity type. It matters because it corrects a common misunderstanding about which partners count for the election-out test.

Ruling snapshot

• Question: Does a partner's tax-exempt or not-for-profit status affect whether a partnership can elect out of the BBA centralized audit regime?
• Outcome: Advice given (no; eligibility turns only on the partner's entity type)
• Key authorities: IRC § 6221(b) (election out of the BBA centralized partnership audit procedures)

Full text (IRS public release)

ID: CCA_2021072610404143
UILC: 6221B.01-00

Number: 202147012
Release Date: 11/26/2021
From: --------------------
Sent: Monday, July 26, 2021 10:40:41 AM
To: -----------------------------------------
Cc:
Bcc:
Subject: RE: ------ and BBA

Hi -------

Whether an entity is tax-exempt/not-for-profit or not has nothing to do with whether an
entity is an eligible partner for purposes of election out under BBA. It solely depends on
what type of entity the partner is. A tax-exempt/not-for-profit entity still has an entity type
(e.g., C corp, etc).

Please let me know if you have any questions.

Thanks,

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