Partner-level adjustment allowed only for non-chapter 1 tax

Plain-English summary

Chief Counsel advised that Treasury Regulation section 301.6241-6 permits the IRS to adjust an item treated as a PRI at the partner level solely to determine a tax outside chapter 1. The item remains a PRI, and the partner-level adjustment cannot affect chapter 1 tax. An item with no possible chapter 1 effect is not a PRI and cannot be adjusted at the partnership level. Net earnings from self-employment can affect a chapter 1 deduction, so the advice treats that item as a PRI subject to partnership-level adjustment. The non-chapter 1 category includes partner-level self-employment tax, payroll tax, excise tax, and the withholding item listed in the document.

Ruling snapshot

• Question: When may an item be adjusted at the partner level rather than the partnership level under the BBA rules?
• Outcome: Advice given, only for determining non-chapter 1 tax without affecting chapter 1 liability
• Key authorities: Treas. Reg. § 301.6241-6

Full text (IRS public release)

 ID:        CCA_2023061508284843                            [Third Party Communication:

 UILC:      6221B.00-00                                     Date of Communication: Month DD, YYYY]

Number: 202346019
Release Date: 11/17/2023
From: --------------------
Sent: Thursday, June 15, 2023 8:28:49 AM
To: ----------------------
Cc:
Bcc:
Subject: RE: Acrobat Document.pdf


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This is still our position. However, under 301.6241-6, the IRS may adjust items that
would be PRIs at the partner level solely for purposes of determining a non-chapter 1
tax. So if the IRS wanted to make the determination at the partner level instead of the
partnership level, it could but there could not be any effect on chapter 1 taxes as a
result of that ---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------Under 301.6241-
6 the item would still be a PRI, it would just be adjusted at the partner-level for non-
chapter 1 purposes. -----------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------

The checklist is correct. If an item has zero possible impact on chapter 1 taxes, it is not
a PRI and cannot be adjusted at the partnership level. NESE impacts a chapter 1
deduction which is why it is a PRI and can be adjusted at the partnership level. NESE
would not be covered by the “non-chapter 1” box. Things that would be covered by that
– any adjustments to chapter ¾ withholding, actual partner-level SECA tax, payroll
taxes, excise taxes.

Hope this helps. Please let me know if you have any questions.

Thanks,
Jenni

Jenni Black (she/her)
Senior Counsel
CC:PA:06
Phone: (202) 317-5216