Enactment of Part and Repeal and Reenactment of Section
Pub. L. 114–74, title XI, § 1101(a), (c)(1), (g), Nov. 2, 2015, 129 Stat. 625, 628, 638, provided that, applicable to returns filed for partnership taxable years beginning after Dec. 31, 2017, with certain exceptions, a new Part II heading “Partnership Adjustments” and analysis consisting of items 6225 to 6227 are enacted, this section is repealed, and a new section 6225 following the Part II analysis is enacted to read as follows:
§ 6225. Partnership adjustment by Secretary
(a) In general
In the case of any adjustment by the Secretary in the amount of any item of income, gain, loss, deduction, or credit of a partnership, or any partner’s distributive share thereof—
(1) the partnership shall pay any imputed underpayment with respect to such adjustment in the adjustment year as provided in section 6232, and
(2) any adjustment that does not result in an imputed underpayment shall be taken into account by the partnership in the adjustment year—
(A) except as provided in subparagraph (B), as a reduction in non-separately stated income or an increase in non-separately stated loss (whichever is appropriate) under section 702(a)(8), or
(B) in the case of an item of credit, as a separately stated item.
(b) Determination of imputed underpayments
For purposes of this subchapter—
(1) In general
Except as provided in subsection (c), any imputed underpayment with respect to any partnership adjustment for any reviewed year shall be determined—
(A) by netting all adjustments of items of income, gain, loss, or deduction and multiplying such net amount by the highest rate of tax in effect for the reviewed year under section 1 or 11,
(B) by treating any net increase or decrease in loss under subparagraph (A) as a decrease or increase, respectively, in income, and
(C) by taking into account any adjustments to items of credit as an increase or decrease, as the case may be, in the amount determined under subparagraph (A).
(2) Adjustments to distributive shares of partners not netted
In the case of any adjustment which reallocates the distributive share of any item from one partner to another, such adjustment shall be taken into account under paragraph (1) by disregarding—
(A) any decrease in any item of income or gain, and
(B) any increase in any item of deduction, loss, or credit.
(c) Modification of imputed underpayments
(1) In general
The Secretary shall establish procedures under which the imputed underpayment amount may be modified consistent with the requirements of this subsection.
(2) Amended returns of partners
(A) In general
Such procedures shall provide that if—
(i) one or more partners file returns (notwithstanding section 6511) for the taxable year of the partners which includes the end of the reviewed year of the partnership,
(ii) such returns take into account all adjustments under subsection (a) properly allocable to such partners (and for any other taxable year with respect to which any tax attribute is affected by reason of such adjustments), and
(iii) payment of any tax due is included with such return,
then the imputed underpayment amount shall be determined without regard to the portion of the adjustments so taken into account.
(B) Reallocation of distributive share
In the case of any adjustment which reallocates the distributive share of any item from one partner to another, paragraph (2) shall apply only if returns are filed by all partners affected by such adjustment.
(3) Tax-exempt partners
Such procedures shall provide for determining the imputed underpayment without regard to the portion thereof that the partnership demonstrates is allocable to a partner that would not owe tax by reason of its status as a tax-exempt entity (as defined in section 168(h)(2)).
(4) Modification of applicable highest tax rates
(A) In general
Such procedures shall provide for taking into account a rate of tax lower than the rate of tax described in subsection (b)(1)(A) with respect to any portion of the imputed underpayment that the partnership demonstrates is allocable to a partner which—
(i) in the case of ordinary income, is a C corporation, or
(ii) in the case of a capital gain or qualified dividend, is an individual.
In no event shall the lower rate determined under the preceding sentence be less than the highest rate in effect with respect to the income and taxpayer described in clause (i) or clause (ii), as the case may be. For purposes of clause (ii), an S corporation shall be treated as an individual.
(B) Portion of imputed underpayment to which lower rate applies
(i) In general
Except as provided in clause (ii), the portion of the imputed underpayment to which the lower rate applies with respect to a partner under subparagraph (A) shall be determined by reference to the partners’ distributive share of items to which the imputed underpayment relates.
(ii) Rule in case of varied treatment of items among partners
If the imputed underpayment is attributable to the adjustment of more than 1 item, and any partner’s distributive share of such items is not the same with respect to all such items, then the portion of the imputed underpayment to which the lower rate applies with respect to a partner under subparagraph (A) shall be determined by reference to the amount which would have been the partner’s distributive share of net gain or loss if the partnership had sold all of its assets at their fair market value as of the close of the reviewed year of the partnership.
(5) Other procedures for modification of imputed underpayment
The Secretary may by regulations or guidance provide for additional procedures to modify imputed underpayment amounts on the basis of such other factors as the Secretary determines are necessary or appropriate to carry out the purposes of this subsection.
(6) Year and day for submission to Secretary
Anything required to be submitted pursuant to paragraph (1) shall be submitted to the Secretary not later than the close of the 270-day period beginning on the date on which the notice of a proposed partnership adjustment is mailed under section 6231 unless such period is extended with the consent of the Secretary.
(7) Decision of Secretary
Any modification of the imputed underpayment amount under this subsection shall be made only upon approval of such modification by the Secretary.
(d) Definitions
For purposes of this subchapter—
(1) Reviewed year
The term “reviewed year” means the partnership taxable year to which the item being adjusted relates.
(2) Adjustment year
The term “adjustment year” means the partnership taxable year in which—
(A) in the case of an adjustment pursuant to the decision of a court in a proceeding brought under section 6234, such decision becomes final,
(B) in the case of an administrative adjustment request under section 6227, such administrative adjustment request is made, or
(C) in any other case, notice of the final partnership adjustment is mailed under section 6231.
Pub. L. 114–113, div. Q, title IV, § 411(a), (e), Dec. 18, 2015, 129 Stat. 3121, 3122, provided that, effective as if included in section 1101 of Pub. L. 114–74, subsection (c) of this section (as added by Pub. L. 114–74, see note above) is amended as follows:
(1) in paragraph (4)(A)(i), by striking “in the case of ordinary income,”;
(2) by redesignating paragraphs (5) through (7) as paragraphs (6) through (8), respectively; and
(3) by inserting after paragraph (4) the following new paragraph:
(5) Certain passive losses of publicly traded partnerships
(A) In general
In the case of a publicly traded partnership (as defined in section 469(k)(2)), such procedures shall provide—
(i) for determining the imputed underpayment without regard to the portion thereof that the partnership demonstrates is attributable to a net decrease in a specified passive activity loss which is allocable to a specified partner, and
(ii) for the partnership to take such net decrease into account as an adjustment in the adjustment year with respect to the specified partners to which such net decrease relates.
(B) Specified passive activity loss
For purposes of this paragraph, the term “specified passive activity loss” means, with respect to any specified partner of such publicly traded partnership, the lesser of—
(i) the passive activity loss of such partner which is separately determined with respect to such partnership under section 469(k) with respect to such partner’s taxable year in which or with which the reviewed year of such partnership ends, or
(ii) such passive activity loss so determined with respect to such partner’s taxable year in which or with which the adjustment year of such partnership ends.
(C) Specified partner
For purposes of this paragraph, the term “specified partner” means any person if such person—
(i) is a partner of the publicly traded partnership referred to in subparagraph (A),
(ii) is described in section 469(a)(2), and
(iii) has a specified passive activity loss with respect to such publicly traded partnership,
with respect to each taxable year of such person which is during the period beginning with the taxable year of such person in which or with which the reviewed year of such publicly traded partnership ends and ending with the taxable year of such person in which or with which the adjustment year of such publicly traded partnership ends.
Amendments
1997—Pub. L. 105–34 substituted “the proper court, including the Tax Court. The Tax Court shall have no jurisdiction to enjoin any action or proceeding under this subsection unless a timely petition for a readjustment of the partnership items for the taxable year has been filed and then only in respect of the adjustments that are the subject of such petition.” for “the proper court.”
Effective Date of 2015 Amendment
Amendment by Pub. L. 114–113 effective as if included in section 1101 of Pub. L. 114–74, see section 411(e) of Pub. L. 114–113, set out as a note under section 6031 of this title.
Effective Date of Repeal and Reenactment
Repeal and reenacted section applicable to returns filed for partnership taxable years beginning after Dec. 31, 2017, with certain exceptions, see section 1101(g) of Pub. L. 114–74, set out as an Effective Date of 2015 Amendment note under section 6221 of this title.
Effective Date of 1997 Amendment
Pub. L. 105–34, title XII, § 1239(f), Aug. 5, 1997, 111 Stat. 1028, provided that:
“The amendments made by this section [amending this section and sections 6226, 6230, 6501, 6512, 7421, 7459, and 7482 of this title] shall apply to partnership taxable years ending after the date of the enactment of this Act [Aug. 5, 1997].”