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Internal Revenue Bulletin No.

2001–43
October 22, 2001

bulletin
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.

INCOME TAX EMPLOYEE PLANS
Rev. Rul. 2001–50, page 343. Notice 2001–65, page 369.
Built-in gains tax. The built-in gains tax under section 1374 Weighted average interest rate update. The weighted
of the Code will not apply to the timber, coal, and domestic average interest rate for October 2001 and the resulting
iron ore transactions described in the four situations in the permissible range of interest rates used to calculate current
ruling. liability for purposes of the full funding limitation of section
412(c)(7) of the Code are set forth.
T.D. 8965, page 344.
Final regulations under sections 6221 through 6233 of the Announcement 2001–103, page 375.
Code implement the unified partnership audit procedures. Filing of certain schedules of Form 5500 due October
15, 2001. As a result of the disruption in financial markets
REG–107151–00, page 370. caused by the events of September 11, 2001, this
Proposed regulations under section 1041 of the Code relate announcement provides limited relief from the penalties for
to the tax treatment of certain redemptions, during marriage failure to file a complete and accurate Schedule B and
or incident to divorce, of stock owned by a spouse or former Schedule R of a Form 5500 that is due on or before October
spouse. A public hearing is scheduled for December 14, 15, 2001.
2001.
Announcement 2001–104, page 376.
Announcement 2001–101, page 374. GUST approved opinion letters and advisory letters.
This document informs issuers of tax-exempt bonds that, This announcement describes the issuance of GUST
effective immediately, the Service will put into effect proce- approved opinion letters and advisory letters in the instance
dures to provide relief to issuers affected by the September of master & prototype and volume submitter specimen plans
11, 2001, terrorist attack. Affected issuers are provided and reminds employers of the need to timely adopt their
additional time to file forms required under section 149(e) of GUST approved plans.
the Code and to make payments required under section
148(f) of the Code.

(Continued on the next page)

Finding Lists begin on page ii.

Department of the Treasury
Internal Revenue Service
EXEMPT ORGANIZATIONS
Announcement 2001–105, page 376.
A list is provided of organizations now classified as private
foundations.

ADMINISTRATIVE
Rev. Proc. 2001–51, page 369.
Section 1374 rulings. This procedure modifies Rev. Proc.
2001–3 (2001–1 I.R.B. 111) by removing section 5.06 from
the No-Rule list. This concerns the application of section
1374 of the Code to certain timber, coal, and domestic iron
ore transactions. Rev. Proc. 2001–3 modified.

October 22, 2001 2001–43 I.R.B.
The IRS Mission

Provide America’s taxpayers top quality service by help- and by applying the tax law with integrity and fairness to
ing them understand and meet their tax responsibilities all.

Introduction
The Internal Revenue Bulletin is the authoritative instrument dures must be considered, and Service personnel and oth-
of the Commissioner of Internal Revenue for announcing offi- ers concerned are cautioned against reaching the same con-
cial rulings and procedures of the Internal Revenue Service clusions in other cases unless the facts and circumstances
and for publishing Treasury Decisions, Executive Orders, Tax are substantially the same.
Conventions, legislation, court decisions, and other items of
general interest. It is published weekly and may be obtained The Bulletin is divided into four parts as follows:
from the Superintendent of Documents on a subscription
basis. Bulletin contents are consolidated semiannually into
Cumulative Bulletins, which are sold on a single-copy basis. Part I.—1986 Code.
This part includes rulings and decisions based on provisions
of the Internal Revenue Code of 1986.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application
Part II.—Treaties and Tax Legislation.
of the tax laws, including all rulings that supersede, revoke,
This part is divided into two subparts as follows: Subpart A,
modify, or amend any of those previously published in the
Tax Conventions and Other Related Items, and Subpart B,
Bulletin. All published rulings apply retroactively unless other-
Legislation and Related Committee Reports.
wise indicated. Procedures relating solely to matters of in-
ternal management are not published; however, statements
of internal practices and procedures that affect the rights Part III.—Administrative, Procedural, and Miscellaneous.
and duties of taxpayers are published. To the extent practicable, pertinent cross references to
these subjects are contained in the other Parts and Sub-
parts. Also included in this part are Bank Secrecy Act Admin-
Revenue rulings represent the conclusions of the Service on
istrative Rulings. Bank Secrecy Act Administrative Rulings
the application of the law to the pivotal facts stated in the
are issued by the Department of the Treasury’s Office of the
revenue ruling. In those based on positions taken in rulings
Assistant Secretary (Enforcement).
to taxpayers or technical advice to Service field offices,
identifying details and information of a confidential nature
are deleted to prevent unwarranted invasions of privacy and Part IV.—Items of General Interest.
to comply with statutory requirements. This part includes notices of proposed rulemakings, disbar-
ment and suspension lists, and announcements.
Rulings and procedures reported in the Bulletin do not have
the force and effect of Treasury Department Regulations, The first Bulletin for each month includes a cumulative index
but they may be used as precedents. Unpublished rulings for the matters published during the preceding months.
will not be relied on, used, or cited as precedents by Service These monthly indexes are cumulated on a semiannual basis,
personnel in the disposition of other cases. In applying pub- and are published in the first Bulletin of the succeeding semi-
lished rulings and procedures, the effect of subsequent leg- annual period, respectively.
islation, regulations, court decisions, rulings, and proce-
The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.

2001–43 I.R.B. October 22, 2001
Part I. Rulings and Decisions Under the Internal Revenue Code of 1986
Section 1374.—Tax Imposed on Situation 4: An S corporation holds coal timber is treated as a sale or exchange of
Certain Built-In Gains or domestic iron ore property with built-in the timber in the year it is cut. Section
gain on the date its election to convert from 631(b) provides that, under certain circum-
26 CFR 1.1374–4: Recognized built-in gain or loss. a C corporation to an S corporation is ef- stances, a taxpayer’s disposition of timber
fective (or acquires coal or domestic iron shall be treated as giving rise to gain or
Built-in gains tax. The built-in gains ore property with built-in gain from a C loss on a sale of such timber. Section
tax under § 1374 will not apply to the tim- corporation in a transaction to which 631(c) provides that, under certain circum-
ber, coal and domestic iron ore transac- § 1374(d)(8) applies). During the recogni- stances, a taxpayer’s disposition to unre-
tions described in the four situations in tion period, the S corporation recognizes lated parties of coal or domestic iron ore
the ruling. that built-in gain on the disposal of the coal shall be treated as giving rise to gain or
or domestic iron ore under a contract to loss on a sale of such coal or iron ore. In
Rev. Rul. 2001–50 which § 631(c) applies. general, § 631 permits a taxpayer to benefit
ISSUE from capital gain treatment in circum-
LAW AND ANALYSIS
stances that would otherwise give rise to
Is the S corporation’s gain recognized Section 1374 imposes a corporate-level ordinary income.
in each of the situations described below tax on an S corporation’s net recognized If an S corporation holds timber prop-
recognized built-in gain for purposes of built-in gain during the recognition period erty on the date its election to convert from
§ 1374 of the Internal Revenue Code? in the case of a C corporation’s conversion a C corporation to an S corporation is ef-
to S corporation status (§ 1374(a)) or an S fective and, during the recognition period,
FACTS
corporation’s acquisition of assets in a cuts the timber and sells the resulting wood
Situation 1: An S corporation holds tim- transaction in which the S corporation’s products in a transaction to which § 631
ber property with built-in gain on the date basis in the acquired assets is determined does not apply, the tax consequences to the
its election to convert from a C corporation by reference to the basis of such assets S corporation under § 1374 are determined
to an S corporation is effective (or acquires in the hands of a C corporation using the same analysis contained in Ex-
timber property with built-in gain from a C (§ 1374(d)(8)). Recognized built-in gain ample 1 of § 1.1374–4(a)(3). The wood
corporation in a transaction to which includes any gain recognized on the dispo- products sold as inventory during the
§ 1374(d)(8) applies). During the 10-year sition of an asset during the recognition pe- recognition period did not constitute sepa-
period beginning with the first day of the riod, except to the extent the S corporation rate assets held by the S corporation on the
first taxable year for which the corporation establishes that it did not hold the asset on conversion date and thus their production
was an S corporation (or beginning on the the conversion date or § 1374(d)(8) transac- and sale do not constitute a partial disposi-
day of the § 1374(d)(8) transaction) (the tion date, or that the gain recognized was tion of the timber property. See Rev. Rul.
recognition period), the S corporation cuts greater than the excess of the asset’s fair 72–515 (1972–2 C.B. 466) (treating grow-
the timber and sells the resulting wood market value over its adjusted basis on the ing timber as part of the underlying real
products and recognizes that built-in gain conversion date or § 1374(d)(8) transaction property for purposes of § 1031). Accord-
in a transaction to which § 631 does not date (§ 1374(d)(3)). Section 1374(d)(3) ap- ingly, the S corporation’s income on the
apply. plies to any gain recognized during the sale of the resulting wood products during
Situation 2: An S corporation holds tim- recognition period in a transaction treated the recognition period is not recognized
ber property with built-in gain on the date as a sale or exchange for Federal income built-in gain within the meaning of
its election to convert from a C corporation tax purposes (§ 1.1374–4(a) of the Income § 1374(d)(3) and is not taxed under § 1374.
to an S corporation is effective (or acquires Tax Regulations). In Example 1 of Notwithstanding the treatment accorded
timber property with built-in gain from a C § 1.1374–4(a)(3), X is a C corporation that income under § 631, the income received
corporation in a transaction to which elects to become an S corporation effective from the sale of the resulting wood prod-
§ 1374(d)(8) applies). During the recogni- January 1, 1996. On that date, X owns a uct, produced coal, or produced iron ore
tion period, the S corporation recognizes working interest in an oil and gas property involves the receipt of normal operating
that built-in gain on cutting the timber pur- with a fair market value of $250,000 and an business income in the nature of rent or
suant to an election under § 631(a). adjusted basis of $500,000. During the royalties. See Rev. Rul. 77–109 (1977–1
Situation 3: An S corporation holds tim- recognition period, X produces and sells oil C.B. 87) (holding that payments received
ber property with built-in gain on the date its extracted from the oil and gas property for from a disposal of coal to which § 631(c)
election to convert from a C corporation to $75,000. The example concludes that the does not apply is ordinary income). The
an S corporation is effective (or acquires tim- $75,000 is not recognized built-in gain receipt of normal operating business in-
ber property with built-in gain from a C cor- under § 1374 because, as of the beginning come in the nature of rents and royalties is
poration in a transaction to which of the recognition period, X held only a not subject to tax under § 1374. There is
§ 1374(d)(8) applies). During the recogni- working interest in the oil and gas property, no indication that Congress intended the
tion period, the S corporation recognizes that and not the oil itself. capital gain tax rate benefits provided by
built-in gain on the disposal of the timber Section 631(a) provides that, under cer- section § 631 to cause normal operating
under a contract to which § 631(b) applies. tain circumstances, a taxpayer’s cutting of business income from the cutting of tim-

2001–43 I.R.B. 343 October 22, 2001
ber or the extraction of minerals to be sub- SUMMARY: This document contains final Books or records relating to this collec-
ject to tax under § 1374. Moreover, regulations relating to the unified partnership tion of information must be retained as
§ 631(c) is designed to favor domestic audit procedures added to the Internal long as their contents may become mater-
production of iron ore and sales of coal Revenue Code by the Tax Equity and Fiscal ial in the administration of any internal
and iron ore to unrelated parties. Applying Responsibility Act of 1982 (TEFRA), and revenue law. Generally, tax returns and
§ 1374 to income taxed under § 631(c) amended by the Taxpayer Relief Act of 1997 tax return information are confidential, as
could have the anomalous effect of taxing (1997 Act) and the Internal Revenue Service required by 26 U.S.C. 6103.
sales of domestic iron ore more heavily Restructuring and Reform Act of 1998 (1998
than sales of foreign production and tax- Act). The unified partnership audit proce- Background
ing sales of coal and iron to unrelated par- dures provide administrative rules for the These regulations finalize the regulations
ties more heavily than sales to related par- auditing of a partnership and its partners. proposed December 13, 1984 (L.R. 242–84,
ties. Accordingly, an S corporation’s gain 1984–2 C.B. 917 [49 FR 48573]), April 18,
recognized pursuant to § 631(a), § 631(b), EFFECTIVE DATES: These regulations
are effective October 4, 2001. 1986 (L.R. 205–82, 1986–1 C.B. 782 [51
or § 631(c) during the recognition period FR 13231]), and January 26, 1999
is not recognized built-in gain within the FOR FURTHER INFORMATION CON- (REG–106564–98, 1999–1 C.B. 714 [64 FR
meaning of § 1374(d)(3). TACT: William Heard at (202) 622-7950 3886]) and issued as temporary regulations
(not a toll-free number). on December 13, 1984 (T.D. 7996, 1985–1
HOLDINGS
SUPPLEMENTARY INFORMATION: C.B. 357 [49 FR 48536]), March 5, 1987
The S corporation’s gain recognized in (T.D. 8128, 1987–1 C.B. 325 [52 FR 6779]),
the transactions described in Situation 1, Paperwork Reduction Act and January 26, 1999 (T.D. 8808, 1999–1
2, 3, and 4 is not recognized built-in gain C.B. 682 [64 FR 3837]). On January 26,
for purposes of § 1374. The collections of information contained 1999, proposed regulations (REG–106564–
See also Rev. Proc. 2001–51 (2001–43 in these final regulations have been reviewed 98, 1999–1 C.B. 714) were published in the
I.R.B. 369), which modifies Rev. Proc. and, pending receipt and evaluation of public Federal Register (64 FR 3886). These reg-
2001–3 (2001–1 I.R.B. 111), by deleting comments, approved by the Office of Man- ulations implemented the amendments to the
therefrom section 5.06 (the no-rule under agement and Budget (OMB) under 44 unified partnership audit rules made by the
§ 1374, regarding the tax imposed on cer- U.S.C. 3507 and assigned control number 1997 and 1998 Acts. In addition, the pream-
tain built-in gains). 1545-0790. Responses to these collections ble to those proposed regulations stated that
of information are both mandatory and vol- the IRS planned on finalizing all of the uni-
DRAFTING INFORMATION untary and are required to receive a benefit. fied partnership audit procedure regulations
An agency may not conduct or sponsor, as part of this project (i.e., those regulations
The principal author of this revenue and a person is not required to respond to, a proposed on December 13, 1984, and April
ruling is Cristian P. Silva of the Office of collection of information unless the collec- 18, 1986). No written comments were re-
Associate Chief Counsel (Corporate). For tion of information displays a valid control ceived in response to the January 26, 1999,
further information regarding this revenue number assigned by the Office of Manage- notice of proposed rulemaking. Contempo-
ruling, contact Mr. Silva at (202) 622- ment and Budget. raneous with the issuance of proposed regu-
7750 (not a toll-free call). The collections of information required lations, Treasury and the IRS issued tempo-
by §§ 301.6222(b)–1, 301.6227(c)–1, and rary regulations containing substantially
301.6227(d)–1 are reflected on Form 8082, similar rules. Taxpayers and the IRS have
Section 6221.—Tax Treatment “Notice of Inconsistent Treatment or Admin- been operating under these rules since they
Determined at Partnership Level istrative Adjustment Request (AAR).” The were promulgated as temporary regulations.
burden associated with them is reflected on The proposed regulations under
26 CFR 301.6221–1: Tax treatment determined at that form.
partnership level. §§ 301.6221 thru 301.6233 are adopted,
The remaining collections of information: as revised by this Treasury decision.
T.D. 8965 §§ 301.6222(a)–2, 301.6222(b)–2,
301.6222(b)–3(a)(2), 301.6223(b)–1(b), Explanation of Provisions
301.6223(c)–1(a), 301.6223(e)–2(a),
DEPARTMENT OF THE TREASURY These final regulations contain regula-
301.6223(g)–1, 301.6223(h)–1, 301.6224
Internal Revenue Service tions substantially similar to the previ-
(b)–1(b), 301.6224(c)–1(c), 301.6224(c)
ously proposed and currently effective
26 CFR Parts 301 and 602 –3(c), 301.6229(b)–2(b), 301.6230(b)–1,
temporary regulations under sections
301.6230(e)–1, 301.6231(a)(1)–1(b),
Unified Partnership Audit 6221 through 6231, inclusive. The sub-
301.6231(a)(7)–1, 301.6231(c)–1(d),
Procedures stantive changes from the provisions in
301.6231(c)–2(d), are not reflected on the
the proposed and temporary regulations
Form 8082. The estimated annual burden
AGENCY: Internal Revenue Service are as follows:
per respondent varies from .25 hours to .75
(IRS), Treasury.
hours, depending on individual circum- 1. Clarification of § 301.6223(a)–2T
ACTION: Final regulations and removal stances, with an estimated average of .5 Section 6223 requires the IRS to pro-
of temporary regulations. hours. vide partners with notice of partnership

October 22, 2001 344 2001–43 I.R.B.
proceedings. Under section 6223, the IRS 787 (1990), the issuance of an NBAP 469, the passive loss rules. Because the
must notify each partner of the beginning fewer than 120 days before the issuance application of the passive loss rules to a
of an administrative proceeding by send- of the FPAA does not invalidate the partner is similar to the existing list of af-
ing out a notice of the beginning of an ad- FPAA. Instead, a taxpayer will have 45 fected items, the final regulations provide
ministrative proceeding (NBAP). Under days from the mailing of the FPAA to that the application of the passive loss
§ 301.6223(a)–2T, if the IRS has issued an make the elections provided in section rules under section 469 to a partner with
NBAP but decides not to propose any ad- 6223(e). respect to a loss flowing from a partner-
justments to the partnership return as filed, ship is an affected item to the extent it is
the IRS has 45 days to withdraw the 3. Effect of a Nonresident Alien Partner not a partnership item.
NBAP. If the IRS does not withdraw the on the Small Partnership Exception of
Section 6231(a)(1)(B)(i) 5. Husbands and Wives Owning Partner-
NBAP, however, it is not required to issue
For purposes of the unified partnership ship Interests Separately or Jointly
a notice of final partnership administrative
audit rules, section 6231(a)(1)(B)(i) con- The temporary regulations under sec-
adjustment (FPAA). This has led to some
tains an exception from the definition of a tion 6231 describe the treatment of
confusion among partnerships who post-
partnership for certain small partnerships. spouses under the unified partnership
pone raising adjustments that may result
Under this rule, a partnership does not in- audit rules where: (1) a married couple
in refunds or offsets while they await the
clude any partnership having 10 or fewer owns an interest in a partnership as joint
outcome of the partnership-level audit.
partners, each of whom is an individual property; and (2) a married individual
The issue of whether the IRS is required to
(other than a nonresident alien), a C cor- owns an interest in a partnership as sepa-
issue an FPAA after issuance of an NBAP
poration, or an estate of a deceased part- rate property. Section 301.6231(a)
was litigated in Atlantic Richfield Co. v.
ner. The proposed regulations stated that (12)–1T applies when a married couple
Dept. of Treasury, 1996 U.S. Dist. LEXIS
“the 10 or fewer limitation . . . is applied owns a partnership interest as joint prop-
19891, (D.D.C. Dec. 31, 1996). In that
to the number of natural persons (other erty. It provides that, with limited excep-
case, the court held that the IRS is not re-
than nonresident aliens) . . .” Some prac- tions, spouses holding a joint interest in a
quired to issue an FPAA even if it does not
titioners have read this provision to mean partnership are both treated as partners for
withdraw the NBAP. If the IRS does not
that a nonresident alien can be a partner in purposes of subchapter C of chapter 63 of
issue an FPAA the partners will be unable
a small partnership that is not subject to the Internal Revenue Code. This regula-
to request favorable adjustments unless
the unified partnership audit rules, but tion interprets section 6231(a)(12), which
they have filed a timely administrative ad-
that such partners are not counted toward provides that a husband and wife who
justment request (AAR) seeking a change
the 10 partner limitation. To clarify that a have a joint interest in a partnership shall
in the treatment of partnership items. Ac-
partnership that has a nonresident alien be treated as one person, except as other-
cordingly, a sentence has been added to
partner cannot qualify for the small part- wise provided in regulations.
§ 301.6223(a)–2 to explicitly inform tax-
nership exception of section 6231(a) Section 301.6231(a)(2)–1T applies
payers that the IRS does not have to issue
(1)(B)(i), this parenthetical has been re- when one spouse owns a partnership in-
an FPAA notwithstanding the issuance of
moved in § 301.6231(a)(1)–1(a)(1) of the terest as separate property. It provides
(and failure to withdraw) an NBAP.
final regulations. that, with limited exceptions, a spouse
2. Elections Made Under § 301.6223(e)–2T who files a joint return with an individual
As stated above, section 6223 requires 4. Definition of Affected Item holding a separate interest in a partnership
the IRS to provide partners with an NBAP Under the unified partnership audit is treated as a partner for purposes of sub-
and an FPAA. If the IRS fails to provide a rules, special procedures apply with re- chapter C of chapter 63. This regulation
partner with timely notice, the partner spect to affected items, that is, items that interprets section 6231(a)(2), which pro-
may, under § 301.6223(e)–2T(c)(2), elect are affected by partnership items. Section vides that the term partner includes any
to have either the FPAA, a court decision, 301.6231(a)(5)–1T defines the term af- person whose income tax liability is de-
a consistent settlement agreement, or con- fected item as including, among other termined in whole or in part by taking into
version to nonpartnership items apply to things, a partner’s basis in the partner’s account directly or indirectly partnership
that partner’s partnership items. That partnership interest, the application of the items.
election must be mailed within 45 days section 465 at-risk rules to a partner, and In Callaway v. Commissioner, 231 F.3d
after “that notice was mailed.” Section any addition to tax or additional amount 106 (2d Cir. 2000), the U.S. Court of Ap-
301.6223(e)–2T(c)(2). To remove any to the extent that they are not partnership peals for the Second Circuit considered
ambiguity regarding which notice triggers items. Generally, affected items are di- § 301.6231(a)(2)–1T in holding that a
the right to make an election under sec- rectly assessed following partnership pro- wife was not bound by the outcome of a
tion 6223(e), the final regulations amend ceedings. If the item requires partner- unified partnership proceeding where her
the temporary regulations to make it clear level determinations, however, the IRS husband’s partnership items converted to
that the 45-day period for making the must assert changes to affected items in a nonpartnership items during the proceed-
election under section 6223(e) relates to partner-level deficiency proceeding fol- ing. The partnership interest at issue in
the mailing of the FPAA, not the NBAP. lowing the completion of the partnership- Callaway was the husband’s separate
The final regulations also clarify that, in level proceeding. property. The court reasoned that the wife
accordance with Wind Energy Technology The IRS promulgated § 301.6231(a) was treated as a partner under the regula-
Associates III v. Commissioner, 94 T.C. (5)–1T before the enactment of section tion only because she filed a joint return

2001–43 I.R.B. 345 October 22, 2001
with a person who owned a partnership that the partnership’s penalty defenses are cause the 1997 Act amends section
interest; therefore, her tax liability was to be resolved during the partnership pro- 6226(f), but not section 6226(e), it ap-
determined in part by taking into account ceeding; individual defenses can only be pears that Congress did not intend to re-
partnership items. Once the husband’s brought by the partner in a subsequent re- quire a deposit of penalties attributable to
partnership items converted to nonpart- fund action. In addition, the 1999 Regu- partnership-level determinations as a con-
nership items, the wife’s tax liability was lations modify the computational adjust- dition of bringing such an action. This
no longer affected by any partnership ment rules to allow the IRS to assess rule is applicable to civil actions begin-
items and there was no longer any reason penalties under those procedures. Finally, ning on or after October 4, 2001.
for her to participate in or be bound by the the 1999 Regulations specify that partner- Treasury and the IRS also amended
partnership proceedings. ship-level determinations of a penalty § 301.6226(e)–1T to clarify that, in the case
In so holding, the Callaway court dis- may be the subject of a settlement agree- of a petition filed by a 5-percent group or
tinguished Dubin v. Commissioner, 99 ment between the IRS and a partner in a pass-thru partner, the members of the group
T.C. 325 (1992). In Dubin, the Tax Court partnership. If they are, then the IRS or the indirect partners holding an interest
held that a wife was bound by the out- must offer consistent settlement terms in the partnership through the pass-thru
come of a unified partnership audit pro- with respect to those partnership-level de- partner must deposit the aggregate amount
ceeding even though her husband’s part- terminations of the penalty (and other set- by which their tax liabilities would be in-
nership items converted to nonpartnership tled partnership items) to other partners in creased if the treatment of partnership items
items prior to the conclusion of the pro- the partnership, subject to the limitations on the partners’ returns were made consis-
ceeding. In Dubin, unlike Callaway, the of section 6224(c)(2) and the regulations tent with the treatment of partnership items
husband and wife owned the interest as thereunder. on the partnership return. This clarification
joint property. Therefore, each was The final regulations make additional is applicable to civil actions beginning on
treated as having a share of partnership changes to the regulations under subchap- or after March 30, 2002.
items that could be affected by the part- ter C of chapter 63 to conform those regu- 7. Applicability Dates
nership proceeding independently of the lations to the new statutory treatment of This document contains final regula-
other’s share. penalties. Specifically, the final regula- tions relating to the unified partnership
To resolve questions concerning the tions amend § 301.6224(c)–1T to clarify audit procedures added to the Internal
treatment of partnership items when a that a settlement agreement between the Revenue Code by TEFRA, and amended
conversion event occurs with respect to a tax matters partner and the IRS with re- by the 1997 Act and the 1998 Act. Pro-
spouse, §§ 301.6231(a)(2)–1T and spect to penalties, like a settlement agree- posed regulations were published on De-
301.6231(a)(12)–1T have been amended ment with respect to partnership items, cember 13, 1984, April 18, 1986, and Jan-
to be consistent with the Callaway opin- binds partners other than notice partners uary 26, 1999. Temporary regulations
ion. and members of a notice group. Simi- were published on December 13, 1984
larly, the final regulations amend (effective December 10, 1984), March 5,
6. Partnership-Level Determinations of § 301.6224(c)–2T to clarify that a settle- 1987 (effective September 3, 1982), and
Penalties ment agreement between a pass-thru part- January 26, 1999 (effective January 26,
Before the 1997 Act, the IRS could im- ner and the IRS with respect to penalties 1999). The final regulations published in
pose penalties on a partner only through binds indirect partners, as would a settle- this document apply to unified partner-
the application of the deficiency proce- ment agreement with respect to partner- ship proceedings with respect to partner-
dures after the completion of a partner- ship items. In addition, the final regula- ship taxable years beginning on or after
ship-level proceeding. Forcing the IRS to tions amend § 301.6229(f)–1T to clarify October 4, 2001. For unified partnership
open deficiency proceedings against the that the rules applicable to partial settle- proceedings with respect to partnership
individual partners was inconsistent with ments of partnership items also apply to taxable years beginning before October 4,
the efficiency goal of the partnership audit partnership-level determinations of penal- 2001, taxpayers and practitioners are di-
rules. The 1997 Act cured this problem ties. rected to the temporary regulations that
by providing that, for partnership taxable The final regulations also amend were in effect for the period in question.
years ending after August 5, 1997, part- § 301.6226(f)–1T to reflect the 1997 Act
nership-level proceedings include the de- changes to section 6226(f). The 1997 Act Effective Date
termination of applicable penalties at the grants courts jurisdiction to determine
partnership level. Partners may now raise penalties, additions to tax, or additional These regulations are effective as of
any partner-level defenses to the imposi- amounts relating to an adjustment to part- October 4, 2001.
tion of penalties only in a subsequent re- nership items. The final regulations do Special Analyses
fund action. not, however, amend § 301.6226(e)–1T to
The temporary regulations issued on require that a partnership contesting an It has been determined that this Trea-
January 26, 1999 (the 1999 Regulations), FPAA, in a United States district court or sury decision is not a significant regula-
revised §§ 301.6221–1T, 301.6224(c) the United States Court of Federal tory action as defined in Executive Order
–3T(b)(1), and 301.6231(a)(6)–1T to con- Claims, deposit tax attributable to partner- 12866. Therefore, a regulatory assess-
form those regulations to the statutory ship-level determinations of penalties as a ment is not required. It is hereby certified
change. The revised regulations mandate condition of bringing the proceeding. Be- that the collection of information in

October 22, 2001 346 2001–43 I.R.B.
§ 301.6229(b)–2(b) does not have a sig- Adoption of Amendments to the justment to a partnership item shall be
nificant impact on a substantial number of Regulations made based on partnership-level determi-
small entities. This certification is based nations. Partnership-level determinations
on the fact that the notification is only re- Accordingly, 26 CFR parts 301 and
include all the legal and factual determi-
quired for the few partnerships whose Tax 602 are amended as follows:
nations that underlie the determination of
Matters Partners are debtors in a bank- PART 301 - - PROCEDURE AND any penalty, addition to tax, or additional
ruptcy proceeding under Title 11 of the ADMINISTRATION amount, other than partner-level defenses
United States Code. Moreover, the time specified in paragraph (d) of this section.
required to prepare and file the notifica- Paragraph 1. The authority citation for (d) Partner-level defenses. Partner-
tion is minimal and will not have a signif- part 1 is amended by adding entries in nu- level defenses to any penalty, addition to
icant impact on those few small entities merical order to read as follows: tax, or additional amount that relates to an
that file the notification. Therefore, a Authority: 26 U.S.C. 7805 * * * adjustment to a partnership item may not
Regulatory Flexibility Analysis under the Section 301.6231(c)–1 also issued be asserted in the partnership-level pro-
Regulatory Flexibility Act (5 U.S.C. under 26 U.S.C. 6231(c)(1) and (3). ceeding, but may be asserted through sep-
chapter 6) is not required for Section 301.6231(c)–2 also issued arate refund actions following assessment
§ 301.6229(b)–2(b). under 26 U.S.C. 6231(c)(1) and (3). * * * and payment. See section 6230(c)(4).
The other information collections im- Par. 2. Section 301.6221–1 is added to Partner-level defenses are limited to those
posed by this Treasury decision are not read as follows: that are personal to the partner or are de-
subject to the Regulatory Flexibility Act pendent upon the partner’s separate return
§ 301.6221–1 Tax treatment determined
because the notice of proposed rulemak- and cannot be determined at the partner-
at partnership level.
ing with respect to these requirements ship level. Examples of these determina-
was published prior to March 29, 1996. (a) In general. A partner’s treatment of tions are whether any applicable threshold
Nevertheless, we believe that these infor- partnership items on the partner’s return underpayment of tax has been met with
mation collections will not have a signifi- may not be changed except as provided in respect to the partner or whether the part-
cant impact on a substantial number of sections 6222 through 6231 and the regu- ner has met the criteria of section 6664(b)
small entities. This is based on the fact lations thereunder. Thus, for example, if a (penalties applicable only where return is
that most of the information collections partner treats an item on the partner’s re- filed), or section 6664(c)(1) (reasonable
only apply to entities under audit, and the turn consistently with the treatment of the cause exception) subject to partnership-
remaining information collections apply item on the partnership return, the IRS level determinations as to the applicabil-
only to a small number of small busi- generally cannot adjust the treatment of ity of section 6664(c)(2).
nesses, namely small partnerships who that item on the partner’s return except (e) Cross-references. See §§ 301.
elect to have the provisions of subchapter through a partnership-level proceeding. 6231(c)–1 and 301.6231(c)–2 for special
C of chapter 63 apply, and small business Similarly, the taxpayer may not put part- rules relating to certain applications and
partners that report partnership items in- nership items in issue in a proceeding re- claims for refund based on losses, deduc-
consistently with the reporting of that lating to nonpartnership items. For exam- tions, or credits from abusive tax shelter
item on the partnership return. Moreover, ple, the taxpayer may not offset a partnerships.
the time required to prepare and file the potential increase in taxable income based (f) Effective date. This section is ap-
required statements is minimal on those on changes to nonpartnership items by a plicable to partnership taxable years be-
few small entities that file the statements. potential decrease based on partnership ginning on or after October 4, 2001. For
It also has been determined that section items. years beginning prior to October 4, 2001,
553(b) of the Administrative Procedure (b) Restrictions inapplicable after see § 301.6221–1T contained in 26 CFR
Act (5 U.S.C. chapter 5) does not apply to items become nonpartnership items. Sec- part 1, revised April 1, 2001.
these regulations. Pursuant to section tion 6221 and paragraph (a) of this section
§ 301.6221–1T [Removed]
7805(f) of the Internal Revenue Code, the cease to apply to items arising from a
notice of proposed rulemaking was sub- partnership with respect to a partner when Par. 2a. Section 301.6221–1T is re-
mitted to the Chief Counsel for Advocacy those items cease to be partnership items moved.
of the Small Business Administration for with respect to that partner under section Par. 3. Section 301.6222(a)–1 is added
comment on its impact on small business. 6231(b). to read as follows:
(c) Penalties determined at partnership
Drafting Information § 301.6222(a)–1 Consistent treatment of
level. Any penalty, addition to tax, or ad-
partnership items.
The principal author of these regula- ditional amount that relates to an adjust-
tions is Horace Howells, Office of Associ- ment to a partnership item shall be deter- (a) In general. The treatment of a part-
ate Chief Counsel (Passthroughs and Spe- mined at the partnership level. nership item on the partner’s return must
cial Industries), IRS. However, other Partner-level defenses to such items can be consistent with the treatment of that
personnel from the IRS and Treasury De- only be asserted through refund actions item by the partnership on the partnership
partment participated in their develop- following assessment and payment. As- return in all respects including the
ment. sessment of any penalty, addition to tax, amount, timing, and characterization of
* * * * * or additional amount that relates to an ad- the item.

2001–43 I.R.B. 347 October 22, 2001
(b) Treatment must be consistent with ally applied with respect to the source from a source partnership in a manner
partnership return. The treatment of a partnership. For purposes of this section, consistent with the treatment of that item
partnership item on the partner’s return the term source partnership means the by a pass-thru partner through which the
must be consistent with the treatment of partnership (within the meaning of sec- indirect partner holds the interest in the
that item on the partnership return. Thus, tion 6231(a)(1)) from which the partner- source partnership and that pass-thru part-
a partner who treats an item consistently ship item originates. ner—
with a schedule or other information fur- (b) Indirect partner files consistently (i) Treats that item in a manner incon-
nished to the partner by the partnership with source partnership. An indirect part- sistent with the treatment of that item on
has not satisfied the requirement of para- ner who treats an item from a source part- the source partnership’s return; and
graph (a) of this section if the treatment of nership in a manner consistent with the (ii) Files a statement identifying the in-
that item is inconsistent with the treat- treatment of that item on the source part- consistency with the source partnership in
ment of the item on the partnership return nership’s return satisfies the consistency accordance with § 301.6222(b)–1, the in-
actually filed. For rules relating to the requirement of section 6222(a) regardless direct partner is not subject to a computa-
election to be treated as having reported of whether the indirect partner treats that tional adjustment to conform to the treat-
the inconsistency where the partner treats item in a manner consistent with the treat- ment of that item on the return of the
an item consistently with an incorrect ment of that item by the pass-thru partner source partnership.
schedule, see § 301.6222(b)–3. through which the indirect partner holds (d) Examples. The following examples
(c) Examples. The following examples the interest in the source partnership. illustrate the principles of this section:
illustrate the principles of this section: Under these circumstances, therefore, the Example 1. One of the partners in Partnership A
Example 1. B is a partner of Partnership P. Both is Partnership B, which has four equal partners C, D,
Internal Revenue Service shall not send to
B and P use the calendar year as the taxable year. In E, and F. Both A and B are partnerships within the
the indirect partner the notice described in meaning of section 6231(a)(1). On its return, A
December 2001, P receives an advance payment for
services to be performed in 2002 and reports this section 6231(b)(1)(A). reports $100,000 as B’s distributive share of A’s ordi-
amount as income for calendar year 2001. However, (c) Indirect partner files inconsistently nary income. B, however, reports only $80,000 as its
B reports B’s distributive share of this amount on B’s with source partnership—(1) Indirect distributive share of the income and does not notify
income tax return for 2002 and not on B’s return for the Internal Revenue Service of this inconsistent
partner notifies the Internal Revenue Ser- treatment with respect to A. C reports $20,000 as its
2001. B’s treatment of this partnership item is
inconsistent with the treatment of the item by P.
vice of inconsistency. An indirect partner distributive share of the item. Although C reports the
Example 2. Partnership P incurred certain start- who— item consistently with B, C is subject to a computa-
up costs before P was actively engaged in its busi- (i) Treats an item from a source part- tional adjustment to conform the treatment of that
ness. P capitalized these costs. C, a partner in P, item on C’s return to the treatment of that item on A’s
nership in a manner inconsistent with the
deducted C’s proportionate share of these start-up return.
treatment of that item on the source part- Example 2. Assume the same facts as in Example
costs. C’s treatment of the partnership expenditure is
inconsistent with the treatment of that item by P. nership’s return; and 1, except that B notified the Internal Revenue
Example 3. D is a partner in partnership P. P (ii) Files a statement identifying the in- Service of its inconsistent treatment with respect to
reports a loss of $100,000 on its return, $5,000 of consistency with the source partnership in source partnership A. C is not subject to a computa-
which it reports on the Schedule K-1 attached to its tional adjustment.
accordance with § 301.6222(b)–1, shall
return as D’s distributive share. However, P reports Example 3. Assume the same facts as in Example
$15,000 as D’s distributive share of P’s loss on the
not be subject to a computational adjust- 1. D reports only $15,000 as D’s distributive share
Schedule K-1 furnished to D. D reports the $15,000 ment to conform the treatment of that of the income and does not report the inconsistency.
loss on D’s income tax return. D has not satisfied the item to the treatment of that item on the F reports only $9,000 as its distributive share of the
consistent reporting requirement. See, however, return of the source partnership. item but reports this inconsistency with respect to
§ 301.6222(b)–3 for an election to be treated as hav- source partnership A. D is subject to a computation-
(2) Indirect partner does not notify the al adjustment to conform the treatment of that item
ing reported the inconsistency.
Internal Revenue Service of inconsis- on D’s return to the treatment of that item on A’s
(d) Effective date. This section is ap-
tency. Except as provided in paragraph return. F is not subject to a computational adjust-
plicable to partnership taxable years be- ment.
(c)(3) of this section, an indirect partner
ginning on or after October 4, 2001. For Example 4. Assume the same facts as in Example
who—
years beginning prior to October 4, 2001, 3, except that F reported the inconsistency with
(i) Treats an item from a source part- respect to B and did not report the inconsistency
see § 301.6222(a)–1T contained in 26
nership in a manner inconsistent with the with respect to source partnership A. F is subject to
CFR part 1, revised April 1, 2001.
treatment of that item on the source part- a computational adjustment to conform the treatment
§ 301.6222(a)–1T [Removed] nership’s return; and of that item on F’s return to the treatment of that item
on A’s return.
(ii) Fails to file a statement identifying Example 5. Assume the same facts as in Example
Par. 3a. Section 301.6222(a)–1T is re- the inconsistency with the source partner- 1. E reports $25,000 as its distributive share of the
moved. ship in accordance with § 301.6222(b)–1, item. Regardless of whether E reports the inconsis-
Par. 4. Section 301.6222(a)–2 is added is subject to a computational adjustment tency between its treatment of the item and that by
to read as follows: to conform the treatment of that item to B, E is neither subject to a computational adjustment
to conform E’s treatment of that item to that of B nor
§ 301.6222(a)–2 Application of the treatment of that item on the return of subject to the notice described in section
consistent reporting and notification the source partnership. 6231(b)(1)(A) with respect to any such notification
rules to indirect partners. (3) Indirect partner files consistently of inconsistent treatment.
with a pass-thru partner that notifies the (e) Effective date. This section is ap-
(a) In general. The consistent reporting Internal Revenue Service of the inconsis- plicable to partnership taxable years be-
requirement of § 301.6222(a)–1 is gener- tency. If an indirect partner treats an item ginning on or after October 4, 2001. For

October 22, 2001 348 2001–43 I.R.B.
years beginning prior to October 4, 2001, (1) Conducts a partnership-level pro- § 301.6222(b)–2T [Removed]
see § 301.6222(a)–2T contained in 26 ceeding; or
CFR part 1, revised April 1, 2001. (2) Notifies the partner under section Par. 6a. Section 301.6222(b)–2T is re-
6231(b)(1)(A) that all partnership items moved.
§ 301.6222(a)–2T [Removed] arising from that partnership will be Par. 7. Section 301.6222(b)–3 is added
treated as nonpartnership items. See, to read as follows:
Par. 4a. Section 301.6222(a)–2T is re-
moved. however, §§ 301.6231(c)–1 and
§ 301.6222(b)–3 Partner receiving
Par. 5. Section 301.6222(b)–1 is added 301.6231(c)–2 for special rules relating to
incorrect schedule.
to read as follows: certain applications and claims for refund
based on losses, deductions, or credits (a) In general. A partner shall be
§ 301.6222(b)–1 Notification to the from abusive tax shelter partnerships. treated as having complied with section
Internal Revenue Service when partnership (b) Partner protected only to extent of 6222(b)(1)(B) and § 301.6222(b)–1 with
items are treated inconsistently. notification. (1) A partner who reports the respect to a partnership item if the part-
inconsistent treatment of partnership items ner—
(a) In general. The statement identify- on the partner’s return is protected from
ing an inconsistency described in section (1) Demonstrates that the treatment of
computational adjustments under section the partnership item on the partner’s re-
6222(b)(1)(B) shall be filed by filing the 6222(c) only with respect to those partner-
form prescribed for that purpose in accor- turn is consistent with the treatment of
ship items the inconsistent treatment of that item on the schedule prescribed by
dance with the instructions accompanying which is reported. Thus, if a partner notify-
that form. the Internal Revenue Service and fur-
ing the Internal Revenue Service with re- nished to the partner by the partnership
(b) Effective date. This section is ap- spect to one item fails to report the incon-
plicable to partnership taxable years be- showing the partner’s share of income,
sistent treatment of another item, the credits, deductions, etc.; and
ginning on or after October 4, 2001. For partner is subject to a computational adjust-
years beginning prior to October 4, 2001, (2) Elects in accordance with the rules
ment with respect to that other item. prescribed in paragraph (b) of this section
see § 301.6222(b)–1T contained in 26 (2) The following example illustrates
CFR part 1, revised April 1, 2001. to have this section apply with respect to
the principles of this paragraph (b): that item.
Example. Partner A of Partnership P treats a
§ 301.6222(b)–1T [Removed] deduction and a capital gain arising from P on A’s
(b) Election provisions—(1) Time and
return in a manner that is inconsistent with the treat- manner of making election. The election
Par. 5a. Section 301.6222(b)–1T is re- ment of those items by P. A reports the inconsistent described in paragraph (a) of this section
moved. treatment of the deduction but not of the gain. A is shall be made by filing a statement with
Par. 6. Section 301.6222(b)–2 is added subject to a computational adjustment under section the Internal Revenue Service office issu-
to read as follows: 6222(c) with respect to the gain.
ing the notice of computational adjust-
(c) Adjustments in a separate proceed-
§ 301.6222(b)–2 Effect of notification of ment within 30 days after the notice is
ing not limited to conforming adjust-
inconsistent treatment. mailed to the partner.
ments. (1) If the Internal Revenue Service
(2) Contents of statement. The state-
conducts a separate proceeding with a
(a) In general. Generally, if a partner ment described in paragraph (b)(1) of this
partner whose partnership items are
treats a partnership item on the partner’s section shall be—
treated as nonpartnership items under sec-
return in a manner inconsistent with the (i) Clearly identified as an election
tion 6231(b), the Internal Revenue Ser-
treatment of that item on the partnership under section 6222(b)(2);
vice is not limited to making adjustments
return, the Internal Revenue Service may (ii) Signed by the partner making the
that merely conform the partner’s return
make a computational adjustment to con- election; and
to the partnership return.
form the treatment of the item by the part- (iii) Accompanied by copies of the
(2) Example. The following example
ner with the treatment of that item on the schedule furnished to the partner by the
illustrates the principles of this paragraph
partnership return. Any additional tax re- partnership and of the notice of computa-
(c):
sulting from that computational adjust- Example. Partnership P allocates to E, one of its
tional adjustment. The partner need not
ment may be assessed without either the partners, a loss of $8,000. E, however, claims a loss enclose a copy of the notice of computa-
commencement of a partnership proceed- of $9,000 and reports the inconsistent treatment. tional adjustment, however, if the partner
ing or notification to the partner that all The Internal Revenue Service notifies E that it will clearly identifies the notice of computa-
treat all of E’s partnership items arising from P as tional adjustment. Generally, the require-
partnership items arising from that part-
nonpartnership items. As a result of a separate pro-
nership will be treated as nonpartnership ceeding with E, the Internal Revenue Service may
ment described in paragraph (a)(1) of this
items. However, if a partner notifies the issue a deficiency notice which could include reduc- section will be satisfied by attaching to
Internal Revenue Service of the inconsis- ing the loss to $3,000. the statement a copy of the schedule fur-
tent treatment of a partnership item in the (d) Effective date. This section is ap- nished to the partner by the partnership.
manner prescribed in § 301.6222(b)–1, plicable to partnership taxable years be- However, if it is not clear from the infor-
the Internal Revenue Service generally ginning on or after October 4, 2001. For mation contained on the schedule that the
may not make an adjustment with respect years beginning prior to October 4, 2001, treatment of the partnership item on the
to that partnership item unless the Internal see § 301.6222(b)–2T contained in 26 schedule is consistent with the partner’s
Revenue Service— CFR part 1, revised April 1, 2001. treatment of such item on the partner’s re-

2001–43 I.R.B. 349 October 22, 2001
turn, the statement shall also include an Par. 8a. Section 301.6223(a)–1T is re- (3) Other circumstances exist which in-
explanation of how the treatment of such moved. dicate that failure to reissue the notice
item on the schedule is consistent with the Par. 9. Section 301.6223(a)–2 is added would be a serious administrative omis-
treatment on the partner’s return with re- to read as follows: sion.
spect to the characterization, timing, and (c) Effective date. This section is ap-
amount of such item. § 301.6223(a)–2 Withdrawal of notice of plicable to partnership taxable years be-
(c) Effective date. This section is ap- the beginning of an administrative ginning on or after October 4, 2001. For
plicable to partnership taxable years be- proceeding. years beginning prior to October 4, 2001,
ginning on or after October 4, 2001. For (a) In general. If the Internal Revenue see § 301.6223(a)–2T contained in 26
years beginning prior to October 4, 2001, Service, within 45 days after the day on CFR part 1, revised April 1, 2001.
see § 301.6222(b)–3T contained in 26 which the notice specified in section
CFR part 1, revised April 1, 2001. § 301.6223(a)–2T [Removed]
6223(a)(1) is mailed to the tax matters
partner, decides not to propose any ad- Par. 9a. Section 301.6223(a)–2T is re-
§ 301.6222(b)–3T [Removed]
justments to the partnership return as moved.
Par. 7a. Section 301.6222(b)–3T is re- filed, the Internal Revenue Service may Par. 10. Section 301.6223(b)–1 is
moved. withdraw the notice specified in section added to read as follows:
Par. 8. Section 301.6223(a)–1 is added 6223(a)(1) by mailing a letter to that ef-
§ 301.6223(b)–1 Notice group.
to read as follows: fect to the tax matters partner within that
45-day period. Even if the Internal Rev- (a) In general. If a group of partners
§ 301.6223(a)–1 Notice sent to tax enue Service does not withdraw the no- having in the aggregate a 5 percent or
matters partner. tice specified in section 6223(a)(1), the more interest in the profits of a partner-
Internal Revenue Service is not required ship requests and designates one of their
(a) In general. For purposes of sub-
to issue a notice of final partnership ad- members to receive the notices described
chapter C of chapter 63 of the Internal
ministrative adjustment. If the Internal in sections 6223(a)(1) and (2), the mem-
Revenue Code, a notice is treated as
Revenue Service withdraws the notice ber so designated shall be treated as a
mailed to the tax matters partner on the
specified in section 6223(a)(1), neither partner to whom section 6223(a) applies.
earlier of—
the Internal Revenue Service nor the tax Thus, the designated representative is
(1) The date on which the notice is
matters partner is required to furnish any entitled to receive any notice described
mailed to “THE TAX MATTERS PART-
notice with respect to that proceeding to in section 6223(a) that is mailed to the
NER” at the address of the partnership (as
any other partner. Except as provided in tax matters partner 30 days or more after
provided on the partnership return, except
paragraph (b) of this section, a notice the day on which the Internal Revenue
as updated under § 301.6223(c)–1); or
specified in section 6223(a)(1) which has Service receives the request from the
(2) The date on which the notice is
been withdrawn shall be treated for pur- group.
mailed to the person who is the tax mat-
poses of subchapter C of chapter 63 of (b) Request for notice—(1) In general.
ters partner at the address of that person
the Internal Revenue Code as if that no- The Internal Revenue Service shall mail
(as provided on the partner’s return, ex-
tice had never been mailed to the tax mat- to the member of the notice group desig-
cept as updated under § 301.6223(c)–1)
ters partner. nated to receive such notice any notice
or the partnership. See § 301.6223(c)–1
(b) Internal Revenue Service may not described in section 6223(a) that is
for rules relating to the information used
reissue notice except under certain cir- mailed to the tax matters partner 30 days
by the Internal Revenue Service in pro-
cumstances. If the notice specified in sec- or more after the day on which the Inter-
viding notices, etc.
tion 6223(a)(1) was mailed to the tax mat- nal Revenue Service receives the request
(b) Example. The provisions of this
ters partner with respect to a partnership for notice from the group if such request
section may be illustrated by the follow-
taxable year and that notice was later for notice is made in accordance with the
ing example:
Example. Partnership P designates B as its tax withdrawn as provided in paragraph (a) of rules prescribed in this paragraph (b).
matters partner in accordance with § 301.6231(a) this section, the Internal Revenue Service (2) Content of request. The request for
(7)–1(b). On December 1, a notice of the beginning shall not mail a second notice specified in notice from a notice group shall—
of an administrative proceeding is mailed to “THE section 6223(a)(1) with respect to that (i) Identify the partnership by name,
TAX MATTERS PARTNER” at the address of P. On
taxable year unless— address, and taxpayer identification num-
January 10, a copy of the notice is mailed to B at B’s
address. December 1 is treated as the date that the (1) There is evidence of fraud, malfea- ber;
notice was mailed to the tax matters partner. sance, collusion, concealment, or misrep- (ii) Specify the taxable year or years for
(c) Effective date. This section is ap- resentation of a material fact; which the notice group is formed;
plicable to partnership taxable years be- (2) The prior proceeding involved the (iii) Designate the member of the group
ginning on or after October 4, 2001. For misapplication or erroneous interpretation to receive the notices;
years beginning prior to October 4, 2001, of an established Internal Revenue Ser- (iv) Set out the name, address, taxpayer
see § 301.6223(a)–1T contained in 26 vice position existing at the time of the identification number, and profits interest
CFR part 1, revised April 1, 2001. previous examination, or the failure to of each member of the group; and
make an adjustment based on such a posi- (v) Be signed by all partners compris-
§ 301.6223(a)–1T [Removed] tion; or ing the notice group.

October 22, 2001 350 2001–43 I.R.B.
(3) Place for filing. The request for no- filed its request, a statement that it is join- through one or more pass-thru partners) at
tice from a notice group generally must be ing the notice group. The statement shall some time during that taxable year; and
filed with the service center where the identify the partner joining the notice (B) The indirect partner was identified
partnership return is filed. However, if group, the partnership, and the members as provided in section 6223(c)(3) and
the notice group representative knows that of the notice group by name, address, and § 301.6223(c)–1 on or before the date on
the notice described in section 6223(a)(1) taxpayer identification number and shall which the pass-thru partner became a
(beginning of an administrative proceed- be signed by the joining partner. A copy member of a notice group.
ing) has already been mailed to the tax of the statement shall be provided by the (d) Termination of notice group. Un-
matters partner, the statement should be joining partner to both the tax matters less the original request for notice from
filed with the Internal Revenue Service partner and the notice group representa- the notice group or a subsequent state-
office that mailed that notice. tive within 30 days after the request is ment filed by the representative (in accor-
(4) Copy to be sent to the tax matters filed with the Internal Revenue Service. dance with paragraphs (b)(3) and (4) of
partner. A copy of the request for notice The partner shall become a member of the this section) designates a successor to the
from a notice group shall be provided to notice group for each partnership taxable designated group representative, the
the tax matters partner by the notice group year for which the group was formed and group terminates if the representative dies
representative within 30 days after the re- for which the partner was a partner at any (or, in the case of an entity, if the entity is
quest is filed with the Internal Revenue time during such partnership taxable year. dissolved), resigns, or is adjudicated in-
Service. (4) Date on which a partner becomes a competent.
(5) Years covered by request. A request member of notice group. A partner shall (e) Notice group is not a 5-percent
for notice by a notice group may relate become a member of a notice group on group. The forming of a notice group
only to partnership taxable years that have the 30th day after the day on which the In- under this section does not constitute the
ended before the request is filed. A re- ternal Revenue Service receives— forming of a 5-percent group for purposes
quest, however, may relate to more than (i) A request for notice from a notice of litigation. A notice group is formed
one partnership taxable year if the 5 per- group that identifies that partner as a solely for the purpose of receiving no-
cent or more profits interest requirement member of that notice group; or tices. A 5-percent group is formed solely
of section 6223(b)(2) is satisfied for each (ii) A statement filed in accordance for the purpose of filing a petition for ju-
year to which the request relates. with paragraph (c)(3) of this section that dicial review or appealing a judicial deter-
(c) Composition of notice group—(1) states that the partner is joining the notice mination. See § 301.6226(b)–1. Thus, a
In general. A notice group shall be com- group. member of a notice group may choose not
prised only of persons who were partners (5) No withdrawal from notice group. A to join a 5-percent group formed by other
at some time during the partnership tax- partner who has signed a notice group re- members of the notice group.
able year for which the group is formed. quest filed with the Internal Revenue Ser- (f) Effective date. This section is ap-
If a notice group is formed for more than vice remains a member of that notice group plicable to partnership taxable years be-
one taxable year, each member of the until the group terminates. A partner can- ginning on or after October 4, 2001. For
group must have been a partner at some not withdraw from the notice group. years beginning prior to October 4, 2001,
time during at least one of the taxable (6) Indirect and pass-thru partners—(i) see § 301.6223(b)–1T contained in 26
years for which the group is formed. A Pass-thru partners and unidentified indi- CFR part 1, revised April 1, 2001.
notice group may include a partner enti- rect partners. A pass-thru partner may
tled to separate notice. See section become a member of a notice group as § 301.6223(b)–1T [Removed]
6231(d) and § 301. 6231(d)–1 for rules provided in this section. For purposes of
Par. 10a. Section 301.6223(b)–1T is
relating to determining the interest of a applying the aggregate interest require-
removed.
partner in the profits of a partnership for a ment specified in paragraph (a) of this
Par. 11. Section 301.6223(c)–1 is
partnership taxable year for purposes of section to a pass-thru partner, the partner-
added to read as follows:
section 6223(b). See paragraph (c)(6) of ship interest held by the pass-thru partner
this section for rules relating to indirect shall not include any interest held through § 301.6223(c)–1 Additional information
and pass-thru partners. the pass-thru partner by an indirect part- regarding partners furnished to the
(2) Partner may be a member of only ner that has been identified as provided in Internal Revenue Service .
one group. A partner cannot be a member section 6223(c)(3) and § 301.6223(c)–1
of more than one notice group with re- before the date on which the pass-thru (a) In general. In addition to the
spect to the same partnership for the same partner becomes a member of the notice names, addresses, and profits interests as
partnership taxable year. See paragraph group. shown on the partnership return, the Inter-
(c)(6) of this section for rules relating to (ii) Indirect partners identified before nal Revenue Service will use additional
indirect and pass-thru partners. the pass-thru partner joins a notice information as provided in this section for
(3) Partner may join group after forma- group. An indirect partner may become a purposes of administering subchapter C
tion. A partner may join a notice group member of a notice group with respect to of chapter 63 of the Internal Revenue
at any time after the formation of that a partnership taxable year only if— Code.
group by filing, with the Internal Revenue (A) The indirect partner held an interest (b) Procedure for furnishing additional
Service office where the notice group in the partnership (either directly or information—(1) In general. Any person

2001–43 I.R.B. 351 October 22, 2001
may furnish additional information at any is attached to the statement. Furthermore, able years beginning on or after October
time by filing a written statement with the reference to a prior general notification to 4, 2001. For years beginning prior to Oc-
Internal Revenue Service. However, the the Internal Revenue Service that a part- tober 4, 2001, see § 301.6223(c)–1T con-
information contained in the statement ner who would otherwise be the tax mat- tained in 26 CFR part 1, revised April 1,
will be considered for purposes of deter- ters partner is a debtor in a bankruptcy 2001.
mining whether a partner is entitled to a proceeding or has had a receiver ap-
notice described in section 6223(a) only if pointed for the partner in a receivership § 301.6223(c)–1T [Removed]
the Internal Revenue Service receives the proceeding is not sufficient unless a copy Par. 11a. Section 301.6223(c)–1T is
statement at least 30 days before the date of the notification document referred to is removed.
on which the Internal Revenue Service attached to the statement. Par. 12. Section 301.6223(e)–1 is
mails the notice to the tax matters partner. (d) Information supplied by a person added to read as follows:
Similarly, information contained in the other than the tax matters partner. The
statement generally will not be taken into Internal Revenue Service may require ap- § 301.6223(e)–1 Effect of Internal
account for other purposes by the Internal propriate verification in the case of infor- Revenue Service’s failure to provide
Revenue Service until 30 days after the mation furnished by a person other than notice.
statement is received. the tax matters partner. The 30-day pe-
(2) Where statement must be filed. A riod referred to in paragraph (b)(1) of this (a) Notice group. Section 6223(e)
statement furnished under this section section shall not begin until that verifica- (1)(B)(ii) applies with respect to a notice
generally must be filed with the service tion is supplied. group only if the request for notice de-
center where the partnership return is (e) Power of attorney—(1) In general. scribed in § 301.6223(b)–1 is received by
filed. However, if the person filing the This paragraph (e) applies to powers of the Internal Revenue Service at least 30
statement knows that the notice described attorney with respect to proceedings days before the notice is mailed to the tax
in section 6223(a)(1) (beginning of an ad- under subchapter C of chapter 63 of the matters partner.
ministrative proceeding) has already been Internal Revenue Code (chapter 63C) that (b) Indirect partners—(1) In general.
mailed to the tax matters partner, the begin on or after January 2, 2002. For purposes of section 6223(e), the Inter-
statement should be filed with the Internal (2) Specifically for purposes of sub- nal Revenue Service’s failure to provide
Revenue Service office that mailed such chapter C of chapter 63 of the Internal notice to a pass-thru partner entitled to
notice. Revenue Code. A power of attorney notice under section 6223(b) is deemed a
(3) Contents of statement. The state- specifically for purposes of subchapter C failure to provide notice to indirect part-
ment shall— of chapter 63 of the Internal Revenue ners holding an interest in the partnership
(i) Identify the partnership, each part- Code shall be furnished in accordance through the pass-thru partner. However,
ner for whom information is supplied, and with paragraph (b)(2) of this section. this rule does not apply if the indirect
the person supplying the information by (3) Existing power of attorney. A partner—
name, address, and taxpayer identification power of attorney granted to another per- (i) Receives notice from the Internal
number; son by a partner for other tax purposes Revenue Service;
(ii) Explain that the statement is fur- shall not be given effect for purposes of (ii) Is identified as provided in section
nished to correct or supplement earlier in- subchapter C of chapter 63 unless the 6223(c)(3) and § 301.6223(c)–1 at least
formation with respect to the partners in partner specifically requests that the 30 days before the notice is mailed to the
the partnership; power be given such effect in a statement tax matters partner; or
(iii) Specify the taxable year to which furnished to the Internal Revenue Service (iii) Is a member of a notice group enti-
the information relates; in accordance with paragraph (b) of this tled to notice under paragraph (a) of this
(iv) Set out the corrected or additional section. section.
information; and (f) Internal Revenue Service may use (2) Examples. The provisions of para-
(v) Be signed by the person supplying other information. In addition to the in- graph (b)(1) of this section may be illus-
the information. formation on the partnership return and trated by the following examples:
Example 1. Partnership ABC has as one of its
(c) No incorporation by reference to that supplied on statements filed under partners, A, a partnership with three partners, X, Y,
previously furnished documents. Incorpo- this section, the Internal Revenue Service and Z. ABC does not have more than 100 partners,
ration by reference of information con- may use other information in its posses- and partnership A is entitled to notice under section
tained in another document previously sion (for example, a change in address re- 6223(a). In addition, Z was identified as provided in
section 6223(c)(3) and § 301.6223(c)–1 on May 1,
furnished to the Internal Revenue Service flected on a partner’s return) in adminis-
2002. The Internal Revenue Service mailed a notice
will not be given effect for purposes of tering subchapter C of chapter 63 of the to the tax matters partner of ABC on July 1, 2002,
section 6223(c) or 6229(e). For example, Internal Revenue Code. However, the In- but failed to provide notice to partnership A.
reference to a return filed by a pass-thru ternal Revenue Service is not obligated to Notwithstanding the Internal Revenue Service’s
partner which contains identifying infor- search its records for information not ex- notice to the tax matters partner, the Internal
Revenue Service is deemed to have failed to provide
mation with respect to the indirect part- pressly furnished under this section.
notice to X and Y. The Internal Revenue Service’s
ners of that pass-thru partner is not suffi- (g) Effective date. Except as provided failure to provide notice to A, however, has no effect
cient to identify the indirect partners in paragraph (e)(1) of this section, this on Z; whether notice was provided to Z is deter-
unless a copy of the document referred to section is applicable to partnership tax- mined independently.

October 22, 2001 352 2001–43 I.R.B.
Example 2. Assume the same facts as in Example (1) The period within which a petition (ii) Specify the election being made
1, except that the Internal Revenue Service provided for review of the FPAA under section (that is, application of final partnership
notice to partnership A but did not provide separate
notice to Z. Notwithstanding the Internal Revenue
6226 may be filed has expired and no pe- administrative adjustment, court decision,
Service’s notice to partnership A, the Internal tition has been filed; or consistent settlement agreement, or non-
Revenue Service is deemed to have failed to provide (2) The decision of a court in an ac- partnership item treatment);
notice to Z. tion begun by such a petition has be- (iii) Identify the partner making the
Example 3. Assume the same facts as in Example come final, the partner may elect in ac- election and the partnership by name, ad-
1, except that partnership ABC has more than 100
partners and partnership A is entitled to notice under
cordance with paragraph (d) of this dress, and taxpayer identification number;
section 6223(b) because it had at least a 1 percent section to have that adjustment, that de- (iv) Specify the partnership taxable
profits interest in partnership ABC. In addition, X cision, or a settlement agreement de- year to which the election relates; and
became a member of a notice group on June 1, 2002, scribed in section 6224(c)(2) with re- (v) Be signed by the partner making the
and the Internal Revenue Service mailed a notice to spect to the partnership taxable year to election.
the designated member of that notice group. The
Internal Revenue Service also mailed a separate
which the adjustment relates apply to (e) Effective date. This section is ap-
notice to Z. The Internal Revenue Service’s failure that partner. If the partner does not plicable to partnership taxable years be-
to provide notice to partnership A only affects Y, make an election in accordance with ginning on or after October 4, 2001. For
who is deemed not to have been provided notice by paragraph (d) of this section, the part- years beginning prior to October 4, 2001,
the Internal Revenue Service. nership items of the partner for the part- see § 301.6223(e)–2T contained in 26
(c) Effective date. This section is ap- nership taxable year to which the pro- CFR part 1, revised April 1, 2001.
plicable to partnership taxable years be- ceeding relates shall be treated as having
ginning on or after October 4, 2001. For become nonpartnership items as of the § 301.6223(e)–2T [Removed]
years beginning prior to October 4, 2001, day on which the Internal Revenue Ser-
see § 301.6223(e)–1T contained in 26 Par. 13a. Section 301.6223(e)–2T is
vice mails the partner the FPAA. removed.
CFR part 1, revised April 1, 2001. (c) Proceeding still going on. If at the Par. 14. Section 301.6223(f)–1 is
§ 301.6223(e)–1T [Removed] time the Internal Revenue Service mails added to read as follows:
the partner an FPAA, paragraphs (b)(1)
Par. 12a. Section 301.6223(e)–1T is and (2) of this section do not apply, the § 301.6223(f)–1 Duplicate copy of final
removed. partner shall be a party to the proceeding partnership administrative adjustment.
Par. 13. Section 301.6223(e)–2 is unless the partner elects, in accordance
added to read as follows: with paragraph (d) of this section, to (a) In general. Section 6223(f) does
have— not prohibit the Internal Revenue Service
§ 301.6223(e)–2 Elections if Internal Rev- (1) A settlement agreement described from issuing a duplicate copy of the no-
enue Service fails to provide timely notice. in section 6224(c)(2) with respect to the tice of final partnership administrative ad-
partnership taxable year to which the pro- justment (for example, in the event the
(a) In general. This section applies in original notice is lost).
any case in which the Internal Revenue ceeding relates apply to the partner; or
(2) The partnership items of the partner (b) Effective date. This section is ap-
Service fails to timely mail any notice de- plicable to partnership taxable years be-
scribed in section 6223(a) of the Internal for the partnership taxable year to which
the proceeding relates treated as having ginning on or after October 4, 2001. For
Revenue Code to a partner entitled to years beginning prior to October 4, 2001,
such notice within the period specified in become nonpartnership items as of the
day on which the Internal Revenue Ser- see § 301.6223(f)–1T contained in 26
section 6223(d). The failure to issue any CFR part 1, revised April 1, 2001.
notice within the period specified in sec- vice mails the partner the FPAA.
tion 6223(d) does not invalidate the notice (d) Election—(1) In general. The elec- § 301.6223(f)–1T [Removed]
of the beginning of an administrative pro- tion described in paragraph (b) or (c) of
ceeding or final partnership administra- this section shall be made in the manner Par. 14a. Section 301.6223(f)–1T is re-
tive adjustment (FPAA). An untimely prescribed in this paragraph (d). The moved.
FPAA enables the recipient of the un- election shall apply to all partnership Par. 15. Section 301.6223(g)–1 is
timely notice to make the elections de- items for the partnership taxable year to added to read as follows:
scribed in paragraphs (b), (c), and (d) of which the election relates.
(2) Time and manner of making elec- § 301.6223(g)–1 Responsibilities of the
this section. The period within which to tax matters partner.
make the elections described in para- tion. The election shall be made by filing
graphs (b), (c), and (d) of this section a statement with the Internal Revenue (a) Notices described in section
commences with the mailing of an FPAA Service office mailing the FPAA within 6223(a)—(1) Notice of beginning of pro-
to the partner. In the absence of an elec- 45 days after the date on which the FPAA ceeding. Except as otherwise provided in
tion, paragraphs (b) and (c) of this section was mailed to the partner making the § 301.6223(a)–2, the tax matters partner
provide for the treatment of a partner’s election. shall, within 75 days after the Internal
partnership items. (3) Contents of statement. The state- Revenue Service mails the notice speci-
(b) Proceeding finished. If at the time ment shall— fied in section 6223(a)(1), forward a copy
the Internal Revenue Service mails the (i) Be clearly identified as an election of that notice to each partner not entitled
partner an FPAA— under section 6223(e)(2) or (3); to notice from the Internal Revenue

2001–43 I.R.B. 353 October 22, 2001
Service under section 6223. See (vii) Filing by the tax matters partner or (a) In general. The pass-thru partner
§ 301.6230(e)–1 for information to be any other partner of any petition for judi- shall, within 30 days of receiving notice
furnished to the Internal Revenue Service. cial review under sections 6226 or or any other information regarding a part-
(2) Notice of final partnership adminis- 6228(a); nership proceeding from the Internal Rev-
trative adjustment. The tax matters part- (viii) Filing of any appeal with respect enue Service, the tax matters partner, or
ner shall, within 60 days after the Internal to any judicial determination provided for another pass-thru partner, forward a copy
Revenue Service mails the notice speci- in sections 6226 or 6228(a); and of that notice or information to the person
fied in section 6223(a)(2), forward a copy (ix) Final judicial redetermination. or persons holding an interest through the
of that notice to each partner not entitled (2) Partners to be notified. The tax pass-thru partner in the profits or losses of
to notice from the Internal Revenue Ser- matters partner shall provide information the partnership for the partnership taxable
vice under section 6223. with respect to any action or other matter year to which the notice or information
(3) Requirement inapplicable in certain specified in paragraph (b)(1) of this sec- relates. In the case of a pass-thru partner
cases. The tax matters partner is not re- tion to all notice group representatives that is a partnership within the meaning of
quired to send notice to a partner if— and all other partners except partners— section 6231(a)(1), the tax matters partner
(i) Before the expiration of the applica- (i) Whose partnership items become of such partnership shall forward copies
ble 75-day or 60-day period, the partner- nonpartnership items before the expira- of the notice or information to the part-
ship items of that partner have become tion of the period specified in paragraph ners of such partnership.
nonpartnership items (for example, by (b)(3) of this section for furnishing that (b) Effective date. This section is ap-
settlement); information; plicable to partnership taxable years be-
(ii) That partner is an indirect partner (ii) Who are indirect partners and who ginning on or after October 4, 2001. For
and has not been identified to the tax mat- are not identified to the tax matters part- years beginning prior to October 4, 2001,
ters partner at least 30 days before the tax ner at least 30 days before the tax matters see § 301.6223(h)–1T contained in 26
matters partner is required to send such partner is required to provide the informa- CFR part 1, revised April 1, 2001.
notice; tion;
(iii) That partner is treated as a partner (iii) Who are treated as partners solely § 301.6223(h)–1T [Removed]
solely by virtue of § 301.6231(a)(2)–1; by virtue of § 301.6231(a)(2)–1;
Par. 16a. Section 301.6223(h)–1T is
(iv) That partner was a member of a no- (iv) Who are members of a notice
removed.
tice group as of the date on which the no- group as of the date on which the tax mat-
Par. 17. Section 301.6224(a)–1 is
tice was mailed to the tax matters partner ters partner takes that action or receives
added to read as follows:
(see § 301.6223(b)–1(c)(4) for the date on information with respect to that matter
which a partner becomes a member of a (see § 301.6223(b)–1(c)(4) for the date on § 301.6224(a)–1 Participation in
notice group); which a partner becomes a member of a administrative proceedings.
(v) The notice has already been pro- notice group); or
vided to that partner by another person; or (v) Who have already received infor- (a) In general. Every partner in the
(vi) The notice is withdrawn by the Inter- mation with respect to the action or matter partnership, including an indirect partner,
nal Revenue Service under § 301.6223(a)–2. from any other person. has the right to participate in any phase of
(b) Other notices or information—(1) (3) Time for furnishing information. administrative proceedings. However, ex-
In general. The tax matters partner shall The tax matters partner shall furnish in- cept as provided in section 6223 and the
furnish to the partners specified in para- formation with respect to an action or regulations thereunder, neither the Inter-
graph (b)(2) of this section information other matter described in paragraph (b)(1) nal Revenue Service nor the tax matters
with respect to the following— of this section within 30 days of taking partner is required to provide notice of
(i) Closing conference with the exam- the action or receiving information with any proceeding to the partners. Conse-
ining agent; respect to that matter. quently, a partner who wishes, for exam-
(ii) Proposed adjustments, rights of ap- (c) Effective date. This section is ap- ple, to be present during a preliminary
peal, and requirements for filing of a plicable to partnership taxable years be- discussion between an examining agent
protest; ginning on or after October 4, 2001. For and the tax matters partner should make
(iii) Time and place of any Appeals years beginning prior to October 4, 2001, special arrangements with the tax matters
conference; see § 301.6223(g)–1T contained in 26 partner to obtain information as to the
(iv) Acceptance by the Internal Rev- CFR part 1, revised April 1, 2001. time and place of the discussion. The In-
enue Service of any settlement offer; ternal Revenue Service and the tax mat-
(v) Consent to the extension of the pe- § 301.6223(g)–1T [Removed] ters partner will determine the time and
riod of limitations with respect to all part- Par. 15a. Section 301.6223(g)–1T is place for all administrative proceedings.
ners; removed. Arrangements will generally not be
(vi) Filing of a request for administra- Par. 16. Section 301.6223(h)–1 is changed merely for the convenience of
tive adjustment (including a request for added to read as follows: another partner.
substituted return treatment under (b) Effective date. This section is ap-
§ 301.6227(c)–1) on behalf of the partner- § 301.6223(h)–1 Responsibilities of pass- plicable to partnership taxable years be-
ship; thru partner. ginning on or after October 4, 2001. For

October 22, 2001 354 2001–43 I.R.B.
years beginning prior to October 4, 2001, Par. 19. Section 301.6224(c)–1 is Revenue Service and states that the agreement is
see § 301.6224(a)–1T contained in 26 added to read as follows: binding on other partners as provided in section
6224(c)(3). Because partnership J is bound by the
CFR part 1, revised April 1, 2001. settlement agreement, paragraph (a) of this section is
§ 301.6224(c)–1 Tax matters partner may
applied separately to each of the indirect partners to
§ 301.6224(a)–1T [Removed] bind nonnotice partners. determine whether they are bound. A is not bound
by the agreement because A was a member of a
Par. 17a. Section 301.6224(a)–1T is (a) In general. In the absence of a notice group on the day the agreement was entered
removed. showing of fraud, malfeasance, or misrep- into and B is not bound because B filed the statement
Par. 18. Section 301.6224(b)–1 is resentation of fact, if the tax matters part- not to be bound at least 30 days before the agreement
added to read as follows: ner enters into a settlement agreement was entered into. C is bound by the settlement
agreement.
with the Internal Revenue Service with
§ 301.6224(b)–1 Partner may waive (c) Statement not to be bound—(1)
respect to partnership items, including
rights. Contents of statement. The statement re-
partnership-level determinations relating
to any penalty, addition to tax, or addi- ferred to in paragraph (a)(2) of this sec-
(a) In general. A partner may at any
tional amounts that relate to adjustments tion shall—
time waive any right that the partner has
or any restriction on action by the Internal to partnership items, and expressly states (i) Be clearly identified as a statement
Revenue Service under subchapter C of that the agreement shall be binding on the to deny settlement authority to the tax
chapter 63 of the Internal Revenue Code. other partners, then that agreement shall matters partner under section 6224(c)
(b) Form and manner of making be binding on all partners except those (3)(B);
waiver. The waiver described in para- who— (ii) Identify the partner and partnership
graph (a) of this section shall be made by (1) Are, as of the day on which the by name, address, and taxpayer identifica-
a written statement. If the Internal Rev- agreement is entered into, either notice tion number;
enue Service furnishes a form to be used partners or members of a notice group (iii) Specify the taxable year or years to
for this purpose, the partner may make the (see § 301.6223(b)–1(c)(4) for the date on which the statement applies; and
waiver by completing the form in accor- which a partner becomes a member of a (iv) Be signed by the partner filing the
dance with the form’s instructions. If notice group); or statement.
such a form is not furnished, the state- (2) Have, at least 30 days before the (2) Place where statement is to be filed.
ment shall— day on which the agreement is entered The statement described in paragraph
(1) Be clearly identified as a waiver into, filed with the Internal Revenue Ser- (c)(1) of this section generally shall be
under section 6224(b); vice the statement described in paragraph filed with the Internal Revenue Service
(2) Identify the partner and the partner- (c) of this section. service center where the partnership re-
ship by name, address, and taxpayer iden- (b) Indirect partners—(1) In general. turn is filed. However, if the partner
tification number; If, under paragraph (a) of this section, a knows that the notice described in section
(3) Specify the right or restriction being pass-thru partner is not bound by an 6223(a)(1) (beginning of an administra-
waived and the taxable year(s) to which agreement entered into by the tax matters tive proceeding) has already been mailed
the waiver applies; partner, all indirect partners holding an in- to the tax matters partner, the statement
(4) Be signed by the partner making the terest in the partnership through that pass- shall be filed with the Internal Revenue
waiver; and thru partner shall not be bound by that Service office that mailed that notice.
(5) Be filed with the service center agreement. If, however, the pass-thru (3) Consolidated statements. The state-
where the partnership return is filed. partner is bound by an agreement entered ment described in paragraph (c)(1) of this
However, if the person filing the state- into by the tax matters partner, paragraph section may be filed with respect to more
ment knows that the notice described in (a) of this section shall be applied sepa- than one partner if the requirements of
section 6223(a)(1) (beginning of an ad- rately to each indirect partner holding an that paragraph (c)(1) (including signa-
ministrative proceeding) has already been interest in the partnership through the tures) are satisfied with respect to each
mailed to the tax matters partner, the pass-thru partner to determine whether partner.
statement shall be filed with the Internal the indirect partner is also bound by the
(d) Effective date. This section is ap-
Revenue Service office that mailed such agreement.
plicable to partnership taxable years be-
notice. (2) Example. The following example
ginning on or after October 4, 2001. For
(c) Effective date. This section is ap- illustrates the principles of this section:
years beginning prior to October 4, 2001,
plicable to partnership taxable years be- Example. Partnership P has over 100 partners.
Partnership J is a partner in partnership P with a see § 301.6224(c)–1T contained in 26
ginning on or after October 4, 2001. For
profits interest of less than 1 percent. Partnership J CFR part 1, revised April 1, 2001.
years beginning prior to October 4, 2001,
has three partners, A, B, and C. A is a member of a
see § 301.6224(b)–1T contained in 26 notice group with respect to partnership P, but B and § 301.6224(c)–1T [Removed]
CFR part 1, revised April 1, 2001. C are not. On July 1, 2002, B filed the statement
described in paragraph (c) of this section not to be Par. 19a. Section 301.6224(c)–1T is
§ 301.6224(b)–1T [Removed] bound by any settlement agreement entered into by removed.
the tax matters partner of partnership P. On August
Par. 18a. Section 301.6224(b)–1T is 1, 2002, the tax matters partner of partnership P Par. 20. Section 301.6224(c)–2 is
removed. enters into a settlement agreement with the Internal added to read as follows:

2001–43 I.R.B. 355 October 22, 2001
§ 301.6224(c)–2 Pass-thru partner binds of that trust, estate, or nominee, may enter mination of any penalty, addition to tax,
indirect partners. into a settlement agreement with the In- or additional amount that relates to an ad-
ternal Revenue Service on behalf of its re- justment to a partnership item, that part-
(a) Pass-thru partner binds unidentified spective entity that would bind the ner may not subsequently request settle-
indirect partners—(1) In general. If a unidentified indirect partners that hold a ment terms consistent with a settlement
pass-thru partner enters into a settlement partnership interest through the pass-thru that contains the previously settled item.
agreement with the Internal Revenue Ser- partner. The requirement for consistent settlement
vice with respect to partnership items, (c) Effective date. This section is ap- terms applies only if—
that agreement binds all indirect partners plicable to partnership taxable years be- (i) The items were partnership items (or
holding an interest in that partnership ginning on or after October 4, 2001. For a partnership-level determination of any
through the pass-thru partner except those years beginning prior to October 4, 2001, related penalty, addition to tax, or addi-
indirect partners who have been identified see § 301.6224(c)–2T contained in 26 tional amount) for the partner entering
as provided in section 6223(c)(3) and CFR part 1, revised April 1, 2001. into the original settlement immediately
§ 301.6223(c)–1 at least 30 days before before the original settlement; and
the date on which the agreement is en- § 301.6224(c)–2T [Removed]
(ii) The items are partnership items (or
tered into. A settlement with respect to Par. 20a. Section 301.6224(c)–2T is a partnership-level determination of any
partnership items includes partnership- removed. related penalty, addition to tax, or addi-
level determinations relating to any Par. 21. Section 301.6224(c)–3 is tional amount) for the partner requesting
penalty, addition to tax, and additional added to read as follows: the consistent settlement at the time the
amounts that relate to adjustments to part- partner files the request.
nership items. However, if, in addition to § 301.6224(c)–3 Consistent settlements.
(2) Effect of consistent agreement.
the interest in the partnership held Consistent settlement terms are reflected
(a) In general. If the Internal Revenue
through the pass-thru partner entering into in a consistent agreement. A consistent
Service enters into a settlement agreement
a settlement agreement, an indirect part- agreement is not a settlement agreement
with any partner with respect to partner-
ner holds a separate interest in that part- that gives rise to further consistent settle-
ship items, whether comprehensive or
nership, either directly or indirectly ment rights because it is required to be
partial, the Internal Revenue Service shall
through a different pass-thru partner, then given without volitional agreement of the
offer to any other partner who so requests
the indirect partner shall not be bound by Secretary. Therefore, a consistent agree-
in accordance with paragraph (c) of this
that settlement agreement with respect to ment required to be offered to a requesting
section, settlement terms consistent with
the interests held directly or indirectly taxpayer is not a settlement agreement
those contained in the settlement agree-
through a pass-thru partner other than the under section 6224(c)(2) or paragraph
ment entered into.
pass-thru partner entering into the settle- (c)(3) of this section which starts a new
(b) Requirements for consistent settle-
ment agreement. period for requesting consistent settlement
ment terms—(1) In general. Consistent
(2) Example. The provisions of para- terms. For all other purposes of the Inter-
settlement terms are those based on the
graph (a)(1) of this section may be illus- nal Revenue Code, however, (e.g., binding
same determinations with respect to part-
trated by the following example: effect under section 6224(c)(1) and con-
Example. Partnership J is a partner in partnership nership items. However, consistent settle-
P. C is a partner in J but has not been identified as ment terms also may include partnership- version to nonpartnership items under sec-
provided in section 6223(c)(3) and § 301.6223(c)–1. level determinations of any penalty, tion 6231(b)(1)(C)), a consistent agree-
The only interest that C holds in P is through J. The addition to tax, or additional amount that ment is treated as a settlement agreement.
tax matters partner of J enters into a settlement (c) Time and manner of requesting con-
relates to partnership items. Settlements
agreement with the Internal Revenue Service with
with respect to partnership items shall be sistent settlements—(1) In general. A
respect to partnership items arising from P. C is
bound by the settlement agreement entered into by self-contained; thus, a concession by one partner desiring settlement terms consis-
the tax matters partner of J. party with respect to a partnership item tent with the terms of any settlement
(b) Person in pass-thru partner autho- may not be based upon a concession by agreement entered into between any other
rized to enter into settlement agreement another party with respect to any item that partner and the Internal Revenue Service
that binds indirect partners. In the case of is not a partnership item other than a part- shall submit a written statement to the In-
a pass-thru partner that is— nership-level determination of any ternal Revenue Service office that entered
(1) A partnership within the meaning of penalty, addition to tax, or additional into the settlement.
section 6231(a)(1), the tax matters partner amount that relates to an adjustment to a (2) Contents of statement. Except as
of that partnership; partnership item. Consistent agreements otherwise provided in instructions to the
(2) A partnership other than a partner- must be identical to the original settle- taxpayer from the Internal Revenue Ser-
ship described in paragraph (b)(1) of this ment (that is, the settlement upon which vice, the written statement described in
section, any general partner of that part- the offered settlement terms are based). A paragraph (c)(1) of this section shall—
nership; consistent agreement must mirror the (i) Identify the statement as a request
(3) An S corporation, any officer of that original settlement and may not be limited for consistent settlement terms under sec-
S corporation; or to selected items from the original settle- tion 6224(c)(2);
(4) A trust, estate, or nominee, any per- ment. Once a partner has settled a part- (ii) Contain the name, address, and tax-
son authorized in writing to act on behalf nership item, or a partnership-level deter- payer identification number of the part-

October 22, 2001 356 2001–43 I.R.B.
nership and of the partner requesting the the settlement, the items arising from P are no longer ginning on or after October 4, 2001. For
settlement offer (and, in the case of an in- partnership items with respect to G. years beginning prior to October 4, 2001,
direct partner, of the pass-thru partner (e) Effective date. This section is ap- see § 301.6226(b)–1T contained in 26
through which the indirect partner holds plicable to partnership taxable years be- CFR part 1, revised April 1, 2001.
an interest); ginning on or after October 4, 2001. For
(iii) Identify the earlier agreement to years beginning prior to October 4, 2001, § 301.6226(b)–1T [Removed]
which the request refers; and see § 301.6224(c)–3T contained in 26
CFR part 1, revised April 1, 2001. Par. 23a. Section 301.6226(b)–1T is
(iv) Be signed by the partner making
removed.
the request. § 301.6224(c)–3T [Removed] Par. 24. Section 301.6226(e)–1 is
(3) Time for filing request. The state-
added to read as follows:
ment shall be filed not later than the later Par. 21a. Section 301.6224(c)–3T is
of— removed. § 301.6226(e)–1 Jurisdictional
(i) The 150th day after the day on Par. 22. Section 301.6226(a)–1 is requirement for bringing an action in
which the notice of final partnership ad- added to read as follows: District Court or United States Court of
ministrative adjustment is mailed to the Federal Claims.
tax matters partner; or § 301.6226(a)–1 Principal place of
(ii) The 60th day after the day on which business of partnership. (a) Amount to be deposited—(1) In
the settlement agreement was entered (a) In general. The principal place of a general. The jurisdictional amount that
into. partnership’s business for purposes of de- the filing partner (or, in the case of a peti-
(d) Examples. The following examples termining the appropriate district court in tion filed by a 5-percent group, each
illustrate the principles of this section: which a petition for a readjustment of member of the group, or, for civil actions
Example 1. The Internal Revenue Service seeks beginning on or after March 30, 2002, in
to disallow a $100,000 loss reported by Partnership partnership items may be filed is its prin-
cipal place of business as of the date the the case of a petition filed by a pass-thru
P $20,000 of which was allocated to partner X, and
$10,000 of which was allocated to partner Y. The petition is filed. partner, each indirect partner holding an
Internal Revenue Service agrees to a settlement with (b) Example. The provisions of para- interest through the pass-thru partner)
X in which the Internal Revenue Service allows
graph (a) of this section may be illustrated shall deposit is the amount by which the
$12,000 of the loss, accepts the treatment of all other tax liability of the partner would be in-
partnership items on the partnership return, and by the following example:
Example. The principal place of Partnership A’s creased if the treatment of the partnership
imposes a penalty for negligence related to the
$8,000 loss disallowance. Partner Y requests settle- business on the day that the notice of the final part- items on the partner’s return were made
ment terms consistent with the settlement made nership administrative adjustment was mailed to A’s consistent with the treatment of partner-
between X and the Internal Revenue Service. The tax matters partner was Cincinnati, Ohio. However, ship items on the partnership return, as
items are partnership items (or a related penalty) for by the day on which a petition seeking judicial
review of that adjustment was filed, A had moved its
adjusted by the notice of final partnership
X immediately before X enters into the settlement administrative adjustment. The partner is
agreement and are partnership items (or a related principal place of business to Louisville, Kentucky.
penalty) for Y at the time of the request. The Internal For purposes of section 6226(a)(2), A’s principal not required to pay other outstanding lia-
Revenue Service must offer Y settlement terms place of business is Louisville. bilities in order to deposit a jurisdictional
allowing a $6,000 loss, a negligence penalty on the (c) Effective date. This section is ap- amount.
$4,000 disallowance, and otherwise reflecting the plicable to partnership taxable years be- (2) Example. The provisions of para-
treatment of partnership items on the partnership ginning on or after October 4, 2001. For graph (a)(1) of this section may be illus-
return.
years beginning prior to October 4, 2001, trated by the following example:
Example 2. F files inconsistently with Partner-
ship P and reports the inconsistency. The Internal see § 301.6226(a)–1T contained in 26 Example. A files a petition for readjustment of
CFR part 1, revised April 1, 2001. partnership items in the United States Court of
Revenue Service notifies F that it will treat all part-
Federal Claims. A’s tax liability would be increased
nership items arising from P as nonpartnership items
§ 301.6226(a)–1T [Removed] by $4,000 if partnership items on A’s return were
with respect to F. Later, the Internal Revenue
conformed to the partnership return, as adjusted by
Service enters into a settlement with F on these
Par. 22a. Section 301.6226(a)–1T is the notice of final partnership administrative adjust-
items. The Internal Revenue Service is not required
ment. A has an unpaid liability of $10,000 attribut-
to offer the other partners of P settlement terms con- removed.
able to nonpartnership items. A is required to
sistent with the settlement reached between F and Par. 23. Section 301.6226(b)–1 is deposit $4,000 in order to satisfy the jurisdictional
the Internal Revenue Service because the items aris-
added to read as follows: requirement.
ing from P are not partnership items with respect
to F. (b) Deposit taken into account in com-
§ 301.6226(b)–1 5-percent group.
Example 3. G, a partner in Partnership P, filed puting interest. The amount deposited is
suit under section 6228(b) after the Internal Revenue treated as a payment of tax for purposes
(a) In general. All members of a 5-per-
Service failed to allow an administrative adjustment
cent group shall join in filing any petition of chapter 67 of the Internal Revenue
request with respect to a partnership item arising
from P for a taxable year. Under section for judicial review. The designation of a Code (relating to interest).
6231(b)(1)(B), the partnership items of G for the partner as a representative of a notice (c) Deposit generally not treated as
partnership taxable year became nonpartnership group does not authorize that partner to file payment of tax. Except as provided in
items as of the date G filed suit. After G filed suit, paragraph (b) of this section, an amount
a petition for a readjustment of partnership
another partner and the Internal Revenue Service
items on behalf of the notice group. deposited under section 6226(e) shall not
entered into a settlement agreement with respect to
items arising from P in that year. G is not entitled to (b) Effective date. This section is ap- be treated as a payment of tax. Thus, the
consistent settlement terms because, at the time of plicable to partnership taxable years be- Internal Revenue Service may proceed

2001–43 I.R.B. 357 October 22, 2001
against the depositor for a deficiency review of that notice is filed. During the judicial for example, the tax matters partner may
based on nonpartnership items without re- proceeding, a partner of ABC, in accordance with file suit under section 6228(a) if the Inter-
the applicable court rules, raises an issue relating to
gard to this deposit. the treatment of intangible drilling costs. The court
nal Revenue Service fails to take timely
(d) Amount deposited may be applied reviewing the notice has jurisdiction to determine action on the request.
against assessment. If the restriction on the intangible drilling cost issue in addition to the (c) Effective date. This section is ap-
assessment provided under section depreciation issue. plicable to partnership taxable years be-
6225(a) lapses with respect to a defi- (c) Effective date. This section is ap- ginning on or after October 4, 2001. For
ciency attributable to partnership items plicable to partnership taxable years be- years beginning prior to October 4, 2001,
for a partnership taxable year while an ginning on or after October 4, 2001. For see § 301.6227(b)–1T contained in 26
amount is on deposit under section years beginning prior to October 4, 2001, CFR part 1, revised April 1, 2001.
6226(e) in connection with a petition re- see § 301.6226(f)–1T contained in 26
lating to those items, the Internal Revenue CFR part 1, revised April 1, 2001. § 301.6227(c)–1T [Removed]
Service may apply the amount deposited
§ 301.6226(f)–1T [Removed] Par. 27. Section 301.6227(c)–1T is re-
against any such deficiency that is as-
moved.
sessed. Par. 25a. Section 301.6226(f)–1T is re- Par. 27a. Section 301.6227(d)–1 is
(e) Effective date. Except as otherwise moved. added to read as follows:
provided in paragraph (a)(1) of this sec-
tion, this section is applicable to civil ac- § 301.6227(b)–1T [Removed] § 301.6227(d)–1 Administrative
tions beginning on or after October 4, adjustment request filed on behalf of a
Par. 26. Section 301.6227(b)–1T is re-
2001. For civil actions beginning prior to partner.
moved.
October 4, 2001, see § 301.6226(e)–1T
Par. 26a. Section 301.6227(c)–1 is
contained in 26 CFR part 1, revised April (a) In general. A request for an adminis-
added to read as follows:
1, 2001. trative adjustment on behalf of a partner
§ 301.6227(c)–1 Administrative shall be filed on the form prescribed by the
§ 301.6226(e)–1T [Removed] Internal Revenue Service for that purpose
adjustment request by the tax matters
Par. 24a. Section 301.6226(e)–1T is re- partner on behalf of the partnership. in accordance with that form’s instructions.
moved. Except as otherwise provided in that form’s
(a) In general. A request for an admin- instructions, the request shall—
Par. 25. Section 301.6226(f)–1 is
istrative adjustment filed by the tax mat- (1) Be filed in duplicate, the original
added to read as follows:
ters partner on behalf of the partnership copy filed with the partner’s amended in-
§ 301.6226(f)–1 Scope of judicial review. shall be filed on the form prescribed by come tax return (on which the partner
the Internal Revenue Service for that pur- computes the amount by which the part-
(a) In general. A court reviewing a no- pose in accordance with that form’s in- ner’s tax liability should be adjusted if the
tice of final partnership administrative ad- structions. Except as otherwise provided request is granted) and the other copy
justment has jurisdiction to determine all in that form’s instructions, the request filed with the service center where the
partnership items for the taxable year to shall be— partnership return is filed (but, if the no-
which the notice relates and the proper al- (1) Filed with the service center where tice described in section 6223(a)(1) (be-
location of such items among the part- the original partnership return was filed ginning of an administrative proceeding)
ners. Thus, the review is not limited to (but, if the notice described in section has already been mailed to the tax matters
the items adjusted in the notice. In addi- 6223(a)(1) (beginning of an administra- partner, the statement should be filed with
tion, the court has jurisdiction in the part- tive proceeding) has already been mailed the Internal Revenue Service office that
nership-level proceeding to determine any to the tax matters partner, the statement mailed such notice);
penalty, addition to tax, or additional should be filed with the Internal Revenue (2) Identify the partner and the partner-
amount that relates to an adjustment to a Service office that mailed such notice); ship by name, address, and taxpayer iden-
partnership item. However, the court (2) Signed by the tax matters partner; tification number;
does not have jurisdiction in the partner- and (3) Specify the partnership taxable year
ship-level proceeding to consider any (3) Accompanied by revised schedules to which the administrative adjustment re-
partner-level defenses to any penalty, ad- showing the effects of the proposed quest applies;
dition to tax, or additional amount that re- changes on each partner and an explana- (4) Relate only to partnership items;
lates to an adjustment to a partnership tion of the changes. and
item. See section 6230(c)(4) and (b) Denied request for treatment as a (5) Relate only to one partnership and
§ 301.6221–1(c) and (d). substituted return remains administrative one partnership taxable year.
(b) Example. The provisions of para- adjustment request. An administrative (b) Effective date. This section is ap-
graph (a) of this section may be illustrated adjustment request filed by the tax mat- plicable to partnership taxable years be-
by the following example: ters partner on behalf of the partnership ginning on or after October 4, 2001. For
Example. The Internal Revenue Service issues a
for which substituted return treatment is years beginning prior to October 4, 2001,
notice of final partnership administrative adjustment
with respect to Partnership ABC in which the only requested but not granted remains an ad- see § 301.6227(c)–1T contained in 26
item adjusted is depreciation. A petition for judicial ministrative adjustment request. Thus, CFR part 1, revised April 1, 2001.

October 22, 2001 358 2001–43 I.R.B.
Par. 28. Section 301.6229(b)–1 is States Code, such agreement shall be Par. 31. Section 301.6229(f)–1 is
added to read as follows: binding on all partners in the partnership added to read as follows:
unless the Internal Revenue Service has
§ 301.6229(b)–1 Extension by agreement. been notified of the bankruptcy proceed- § 301.6229(f)–1 Special rule for partial
ing in accordance with paragraph (b) of settlement agreements.
(a) In general. Any partnership may
authorize any person to extend the period this section. (a) In general. If a partner enters into
described in section 6229(a) with respect (b) Procedures for notifying the Inter- a settlement agreement with the Internal
to all partners by filing a statement to that nal Revenue Service of a partner’s bank- Revenue Service with respect to the
effect with the service center where the ruptcy proceeding. (1) The Internal Rev- treatment of some of the partnership
partnership return is filed (but, if the no- enue Service shall be notified of the items or partnership-level determina-
tice described in section 6223(a)(1) (be- bankruptcy proceeding of the tax matters tions of any penalty, addition to tax, or
ginning of an administrative proceeding) partner in accordance with the procedures additional amount in dispute for a part-
has already been mailed to the tax matters set forth in § 301.6223(c)–1. nership taxable year, but one or more
partner, the statement should be filed with (2) In addition to the information speci- other partnership items or determina-
the Internal Revenue Service office that fied in § 301.6223(c)–1, notification that tions remain in dispute, the period of
mailed such notice). The statement a person is (or was) a debtor in a bank- limitations for assessing any tax attribut-
shall— ruptcy proceeding shall include the date able to the settled items shall be deter-
(1) Provide that it is an authorization the bankruptcy proceeding was filed, the mined as if such agreement had not been
for a person other than the tax matters name and address of the court in which entered into.
partner to extend the assessment period the bankruptcy proceeding exists (or took (b) Other items remaining in dispute.
with respect to all partners; place), the caption of the bankruptcy pro- Pursuant to section 6226(c), a partner is a
(2) Identify the partnership and the per- ceeding (including the docket number or party to a partnership-level judicial pro-
son being authorized by name, address, other identification number used by the ceeding with respect to partnership items
and taxpayer identification number; court), and the status of the proceeding as and partnership-level determinations of
(3) Specify the partnership taxable year of the date of notification. penalties, additions to tax or additional
or years for which the authorization is ef- (c) Effective date. This section is ap- amounts. When a partner settles partner-
fective; and plicable to partnership taxable years be- ship items, the settled partnership items
(4) Be signed by all persons who were ginning on or after October 4, 2001. For convert to nonpartnership items under
general partners (or, in the case of an years beginning prior to October 4, 2001, section 6231(b)(1)(C) and will not be sub-
LLC, member-managers, as those terms see § 301.6229(b)–2T contained in 26 ject to any future or pending partnership-
are defined in § 301.6231(a)(7)–2(b)) at CFR part 1, revised April 1, 2001. level proceeding pursuant to section
any time during the year or years for § 301.6229(b)–2T [Removed] 6226(d)(1). The remaining unsettled part-
which the authorization is effective. nership items, as well as any unsettled
(b) Effective date. This section is ap- Par. 29a. Section 301.6229(b)–2T is penalty, addition to tax, or additional
plicable to partnership taxable years be- removed. amount that relates to an adjustment to a
ginning on or after October 4, 2001. For Par. 30. Section 301.6229(e)–1 is partnership item (regardless of whether
years beginning prior to October 4, 2001, added to read as follows: the partnership item to which it relates has
see § 301.6229(b)–1T contained in 26 been settled), however, will remain sub-
CFR part 1, revised April 1, 2001. § 301.6229(e)–1 Information with respect ject to determination under partnership-
to unidentified partner. level administrative and judicial proce-
§ 301.6229(b)–1T [Removed] dures. Consequently, any remaining
(a) In general. A partner who is not
Par. 28a. Section 301.6229(b)–1T is properly identified on the partnership re- unsettled items, including any unsettled
removed. turn (including an indirect partner) re- penalty, addition to tax, or additional
Par. 29. Section 301.6229(b)–2 is mains an unidentified partner for pur- amount that relates to an adjustment to a
added to read as follows: poses of section 6229(e) until identifying partnership item, will be deemed to re-
information is furnished as provided in main in dispute. Thus, the period for as-
§ 301.6229(b)–2 Special rule with respect § 301.6223(c)–1. sessing any tax attributable to the settled
to debtors in Title 11 cases. (b) Effective date. This section is ap- items will be governed by the period for
plicable to partnership taxable years be- assessing any tax attributable to the re-
(a) In general. Notwithstanding any maining unsettled items.
other law or rule of law, if an agreement ginning on or after October 4, 2001. For
years beginning prior to October 4, 2001, (c) Effective date. This section is ap-
is entered into under section plicable to partnership taxable years be-
6229(b)(1)(B), and the agreement is see § 301.6229(e)–1T contained in 26
CFR part 1, revised April 1, 2001. ginning on or after October 4, 2001. For
signed by a person who would be the tax years beginning prior to October 4, 2001,
matters partner but for the fact that, at § 301.6229(e)–1T [Removed] see § 301.6229(f)–1T contained in 26
the time that the agreement is executed, CFR part 1, revised April 1, 2001.
the person is a debtor in a bankruptcy Par. 30a. Section 301.6229(e)–1T is
proceeding under Title 11 of the United removed. § 301.6229(f)–1T [Removed]

2001–43 I.R.B. 359 October 22, 2001
Par. 31a. Section 301.6229(f)–1T is re- (a) In general. If a notice of the begin- year had more than 10 partners may be
moved. ning of an administrative proceeding is treated as a small partnership even if, be-
Par. 32. Section 301.6230(b)–1 is mailed to the tax matters partner with re- cause of transfers of interests in the part-
added to read as follows: spect to any partnership taxable year, the nership, 11 or more natural persons, C
tax matters partner shall furnish to the In- corporations, or estates of deceased part-
§ 301.6230(b)–1 Request that correction ternal Revenue Service office that issued ners owned interests in the partnership for
not be made. the notice the name, address, profits inter- some portion of the taxable year. See sec-
(a) In general. The request that a cor- est, and taxpayer identification number of tion 1361(a)(2) for the definition of a C
rection not be made under section each person who was a partner in the part- corporation. For purposes of section
6230(b)(2) shall be in writing and shall— nership at any time during that taxable 6231(a)(1)(B) and this section, a husband
(1) State that it is a request that a cor- year if that information was not provided and wife (and their estates) are treated as
rection not be made under section on the partnership return filed for that one person.
6230(b); year. (2) Pass-thru partner. The exception
(2) Identify the partnership and the (b) Revised or additional information. provided in section 6231(a)(1)(B) does
partner filing the request by name, ad- If the tax matters partner discovers that not apply to a partnership for a taxable
dress, and taxpayer identification number; any information furnished to the Internal year if any partner in the partnership dur-
(3) Be signed by the partner filing the Revenue Service on the partnership return ing that taxable year is a pass-thru partner
request; and or under paragraph (a) of this section was as defined in section 6231(a)(9). For pur-
(4) Be filed with the Internal Revenue incorrect or incomplete, the tax matters poses of this paragraph (a)(2), an estate
Service office that provided the notice of partner shall furnish revised or additional shall not be treated as a pass-thru partner.
the correction of the error. information to the Internal Revenue Ser- (3) Determination made annually. The
(b) Effective date. This section is ap- vice within 15 days of discovering that determination of whether a partnership
plicable to partnership taxable years be- the information furnished to the Internal meets the requirements for the exception
ginning on or after October 4, 2001. For Revenue Service was incorrect or incom- for small partnerships under section
years beginning prior to October 4, 2001, plete. 6231(a)(1)(B) and this paragraph (a) shall
see § 301.6230(b)–1T contained in 26 (c) Information required with respect to be made with respect to each partnership
CFR part 1, revised April 1, 2001. indirect partners. The requirements of taxable year. Thus, a partnership that
this section for identifying information does not qualify as a small partnership in
§ 301.6230(b)–1T [Removed] apply with respect to indirect partners to one taxable year may qualify as a small
the extent that the tax matters partner has partnership in another taxable year if the
Par. 32a. Section 301.6230(b)–1T is such information. requirements for the exception under sec-
removed. (d) Effective date. This section is ap- tion 6231(a)(1)(B) and this paragraph (a)
Par. 33. Section 301.6230(c)–1 is plicable to partnership taxable years be- are met with respect to that other taxable
added to read as follows: ginning on or after October 4, 2001. For year.
§ 301.6230(c)–1 Claim arising out of years beginning prior to October 4, 2001, (b) Election to have subchapter C of
erroneous computation, etc. see § 301.6230(e)–1T contained in 26 chapter 63 apply—(1) In general. Any
CFR part 1, revised April 1, 2001. partnership that meets the requirements
(a) In general. A claim for refund set forth in section 6231(a)(1)(B) and
under section 6230(c) shall state the § 301.6230(e)–1T [Removed]
paragraph (a) of this section (relating to
grounds for the claim and shall be filed Par. 34a. Section 301.6230(e)–1T is the exception for small partnerships) may
with the service center where the partner’s removed. elect under paragraph (b)(2) of this sec-
return is filed. Par. 35. Section 301.6231(a)(1)–1 is tion to have the provisions of subchapter
(b) Effective date. This section is added to read as follows: C of chapter 63 of the Internal Revenue
applicable to partnership taxable years Code apply with respect to that partner-
beginning on or after October 4, 2001. § 301.6231(a)(1)–1 Exception for small ship.
For years beginning prior to October 4, partnerships. (2) Method of election. A partnership
2001, see § 301.6230(c)–1T contained (a) In general. For purposes of the ex- shall make the election described in para-
in 26 CFR part 1, revised April 1, ception for small partnerships under sec- graph (b)(1) of this section by attaching a
2001. tion 6231(a)(1)(B), the rules contained in statement to the partnership return for the
this section shall apply. first taxable year for which the election is
§ 301.6230(c)–1T [Removed] to be effective. The statement shall be
(1) 10 or fewer. The 10 or fewer limi-
Par. 33a. Section 301.6230(c)–1T is tation described in section 6231(a) identified as an election under section
removed. (1)(B)(i) is applied to the number of nat- 6231(a)(1)(B)(ii), shall be signed by all
Par. 34. Section 301.6230(e)–1 is ural persons, C corporations, and estates persons who were partners of that partner-
added to read as follows: of deceased partners that were partners at ship at any time during the partnership
any one time during the partnership tax- taxable year to which the return relates,
§ 301.6230(e)–1 Tax matters partner able year. Thus, for example, a partner- and shall be filed at the time (determined
required to furnish names. ship that at no time during the taxable with regard to any extension of time for

October 22, 2001 360 2001–43 I.R.B.
filing) and place prescribed for filing the this section, for purposes of subchapter C Husband files for bankruptcy. Because the filing of
partnership return. However, for any part- of chapter 63 of the Internal Revenue the bankruptcy petition by Husband is an event that
would convert Husband’s partnership items to non-
nership taxable year for which the due Code, a spouse who files a joint return partnership items if Husband were the owner of a
date of the return (determined without re- with an individual holding a separate in- separate interest, Husband shall no longer be treated
gard to extensions) is before January 2, terest in the partnership shall be treated as as a partner as of the filing of the bankruptcy peti-
2002, the partnership may file the state- receiving any notice received by the indi- tion. Pursuant to paragraph (a)(4)(ii) of this section,
ment described in the preceding sentence vidual holding the separate interest. the partnership items of Wife are not affected by
Husband’s bankruptcy.
on or before the date which is one year (ii) Spouse identified on partnership re-
(5) Cross–reference. See § 301.6231(a)
before the date specified in section turn or by statement. Paragraph (a)(3)(i)
(12)–1 for special rules relating to spouses
6229(a) for the expiration of the period of of this section shall not apply to a spouse
holding a joint interest in a partnership.
limitations with respect to that partnership who files a joint return with an individual
(b) Shareholder of C corporation. A
(determined with regard to extensions of holding a separate interest in the partner-
shareholder of a C corporation (as defined
that period under section 6229(b)). ship if that spouse—
in section 1361(a)(2)) is not a partner in a
(3) Years covered by election. The (A) Is identified on the partnership re-
partnership merely because the C corpo-
election shall be effective for the partner- turn; or
ration is a partner in that partnership.
ship taxable year to which the return re- (B) Is identified as a partner entitled to
(c) Effective date. This section is ap-
lates and all subsequent partnership tax- notice as provided in § 301.6223(c)–1(b).
plicable to partnership taxable years be-
able years unless revoked with the (4) Conversion of partnership items—
ginning on or after October 4, 2001. For
consent of the Commissioner. (i) Individual holding a separate interest.
years beginning prior to October 4, 2001,
(c) Effective date. This section is ap- A spouse who files a joint return with an
see § 301.6231(a)(2)–1T contained in 26
plicable to partnership taxable years be- individual holding a separate interest in
CFR part 1, revised April 1, 2001.
ginning on or after October 4, 2001. For the partnership shall cease to be treated as
years beginning prior to October 4, 2001, a partner in the partnership under para- § 301.6231(a)(2)–1T [Removed]
see § 301.6231(a)(1)–1T contained in 26 graph (a)(1) of this section upon the con-
CFR part 1, revised April 1, 2001. version of the partnership items of the in- Par. 36a. Section 301.6231(a)(2)–1T is
dividual holding the separate interest in removed.
§ 301.6231(a)(1)–1T [Removed] the partnership to nonpartnership items Par. 37. Section 301.6231(a)(5)–1 is
Par. 35a. Section 301.6231(a)(1)–1T is pursuant to section 6231(b). If each added to read as follows:
removed. spouse holds a separate interest in the
partnership, the previous sentence shall be § 301.6231(a)(5)–1 Definition of affected
Par. 36. Section 301.6231(a)(2)–1 is
applied separately with respect to each item.
added to read as follows:
partnership interest.
(a) In general. The term affected item
§ 301.6231(a)(2)–1 Persons whose tax (ii) Spouse who files a joint return with
means any item to the extent such item is
liability is determined indirectly by an individual holding a separate interest
affected by a partnership item. It includes
partnership items. in the partnership. A spouse who files a
items unrelated to the items reflected on
joint return with an individual holding a
(a) Spouse filing joint return with indi- the partnership return (for example, an
separate interest in the partnership shall
vidual holding a separate interest—(1) In item, such as the threshold for the medical
cease to be treated as a partner in the part-
general. Except as otherwise provided in expense deduction under section 213, that
nership under paragraph (a)(1) of this sec-
this paragraph (a), a spouse who files a varies if there is a change in an individual
tion upon the occurrence of an event that
joint return with an individual holding a partner’s adjusted gross income).
would convert the partnership items of the
separate interest in the partnership shall (b) Basis in a partner’s partnership in-
spouse to nonpartnership items if the
be treated as a partner for purposes of terest. The basis of a partner’s partner-
spouse were the owner of a separate inter-
subchapter C of chapter 63 of the Internal ship interest is an affected item to the ex-
est.
Revenue Code. Thus, the spouse who tent it is not a partnership item.
(iii) Examples. The following exam-
files a joint return with a partner will be (c) At-risk limitation. The application
ples illustrate the application of paragraph
permitted to participate in administrative of the at-risk limitation under section 465
(a)(4) of this section:
and judicial proceedings. Example 1. Husband owns a separate interest to a partner with respect to a loss incurred
(2) Counting rules. A spouse who files in ABC partnership and files a joint return with Wife. by a partnership is an affected item to the
a joint return with an individual holding a Husband files for bankruptcy. Pursuant to extent it is not a partnership item.
§ 301.6231(c)–7, upon filing for bankruptcy, the (d) Passive losses. The application of
separate interest in the partnership shall
partnership items of the debtor convert to nonpart-
not be counted as a partner for purposes the passive loss rules under section 469 to
nership items. Thus, Husband’s partnership items
of applying section 6223(b) (relating to converted to nonpartnership items upon the filing of a partner with respect to a loss incurred by
special rules for partnerships with more Husband’s bankruptcy petition. Pursuant to para- a partnership is an affected item to the ex-
than 100 partners) and section graph (a)(4)(i) of this section, Wife is no longer tent it is not a partnership item.
treated as a partner of ABC partnership as of the date (e) Penalty, addition to tax, or addi-
6231(a)(1)(B) (relating to the exception
the partnership items of Husband converted to non-
for small partnerships). tional amount—(1) In general. The term
partnership items.
(3) Notice rules—(i) In general. Ex- Example 2. Wife owns a separate interest in XYZ affected item includes any penalty, addi-
cept as provided in paragraph (a)(3)(ii) of partnership and files a joint return with Husband. tion to tax, or additional amount provided

2001–43 I.R.B. 361 October 22, 2001
by subchapter A of chapter 68 of the In- items by $6,000. An adjustment to a partnership 63 of the Internal Revenue Code), except
ternal Revenue Code of 1986 to the extent item resulting from a partnership proceeding for any penalty, addition to tax, or addi-
increased B’s income tax by an additional $2,000.
provided in this paragraph (e). Prior to the adjustment, B would have been subject
tional amount that relates to an adjust-
(2) Penalty, addition to tax, or addi- to the accuracy-related penalty under section 6662 ment to a partnership item.
tional amount without floor. If a penalty, for a substantial understatement of income tax with (2) Affected items that do not require
addition to tax, or additional amount that respect to the $6,000 understatement attributable to partner-level determinations. Changes in
does not contain a floor (that is, a thresh- nonpartnership items. The portion of the accuracy- a partner’s tax liability with respect to af-
related penalty under section 6662 computed with
old amount of underpayment or under- reference to the $2,000 understatement attributable
fected items that do not require partner-
statement necessary before the imposition to partnership items to which the accuracy-related level determinations (such as the thresh-
of the penalty, addition to tax, or addi- penalty applies is an affected item. The portion of old amount of medical deductions under
tional amount) is imposed on a partner as the accuracy-related penalty under section 6662 section 213 that changes as the result of
the result of an adjustment to a partner- computed with reference to the $6,000 pre-existing determinations made at the partnership
understatement is not an affected item.
ship item, the term affected item shall in- Example 3. C, a partner in partnership P, under-
level) are computational adjustments that
clude the penalty, addition to tax, or addi- stated C’s income tax liability attributable to non- are directly assessed. When making
tional amount computed with reference to partnership items by $4,000. As a result of an computational adjustments, the Internal
the portion of the underpayment that is at- adjustment to partnership items, that understatement Revenue Service may assume that
tributable to the partnership item adjust- is increased to $10,000. Prior to the adjustment, C amounts the partner reported on the part-
would not have been subject to the accuracy-related
ment(s) to which the penalty, addition to penalty under section 6662 for a substantial under-
ner’s individual return include all
tax, or additional amount applies. statement of income tax. The accuracy-related amounts reported to the partner by the
(3) Penalty, addition to tax, or addi- penalty under section 6662 computed with reference partnership (on the Schedule K-1s at-
tional amount containing floor—(i) Floor to the entire $10,000 understatement to which the tached to the partnership’s original re-
exceeded prior to adjustment. If a partner accuracy-related penalty applies is an affected item. turn), absent contrary notice to the Inter-
would have been subject to a penalty, ad- (f) Effective date. This section is ap- nal Revenue Service (for example, a
dition to tax, or additional amount that plicable to partnership taxable years be- “Notice of Inconsistent Treatment” pur-
contains a floor in the absence of an ad- ginning on or after October 4, 2001. For suant to § 301.6222(a)–2(c)). Such an
justment to a partnership item (that is, the years beginning prior to October 4, 2001, assumption by the Internal Revenue Ser-
partner’s understatement or underpay- see § 301.6231(a)(5)–1T contained in 26 vice does not constitute a partner-level
ment exceeded the floor even without an CFR part 1, revised April 1, 2001. determination. Moreover, substituting
adjustment to a partnership item) the term § 301.6231(a)(5)–1T [Removed] redetermined partnership items for the
affected item shall include only the por- partner’s previously reported partnership
tion of the penalty, addition to tax, or ad- Par. 37a. Section 301.6231(a)(5)–1T is items (including partnership items in-
ditional amount computed with reference removed. cluded in carryover amounts) does not
to the partnership item (or affected item) Par. 38. Section 301.6231(a)(6)–1 is constitute a partner-level determination
adjustments. added to read as follows: where the Internal Revenue Service oth-
(ii) Floor not exceeded prior to adjust- erwise accepts, for the sole purpose of
ment. In the case of a penalty, addition to § 301.6231(a)(6)–1 Computational determining the computational adjust-
tax, or additional amount that contains a adjustments. ment, all nonpartnership items (includ-
floor, if the taxpayer’s understatement or (a) Changes in a partner’s tax ing, for example, nonpartnership item
underpayment does not exceed the floor liability—(1) In general. A change in the components of carryover amounts) as re-
prior to an adjustment to a partnership tax liability of a partner to properly reflect ported.
item but does so after such adjustment, the treatment of a partnership item under (3) Affected items that require partner-
the term affected item shall include the subchapter C of chapter 63 of the Internal level determinations. Changes in a part-
penalty, addition to tax, or additional Revenue Code is made through a compu- ner’s tax liability with respect to affected
amount computed with reference to the tational adjustment. A computational ad- items that require partner-level determina-
entire underpayment or understatement to justment includes a change in tax liability tions (such as a partner’s at-risk amount to
which the penalty, addition to tax, or addi- that reflects a change in an affected item the extent it depends upon the source
tional amount applies. where that change is necessary to prop- from which the partner obtained the funds
(4) Examples. The provisions of this erly reflect the treatment of a partnership that the partner contributed to the partner-
paragraph (e) may be illustrated by the item, or any penalty, addition to tax, or ship) are computational adjustments that
following examples: additional amount that relates to an ad- are subject to the deficiency procedures.
Example 1. A, a partner of P, had an aggregate Notwithstanding the preceding sentence,
underpayment of $1,000 of which $100 is attribut- justment to a partnership item. However,
if a change in a partner’s tax liability can- any penalty, addition to tax, or additional
able to an adjustment to partnership items. A is neg-
ligent in reporting the partnership items. The accu- not be made without making one or more amount that relates to an adjustment to a
racy-related penalty under section 6662 for partner-level determinations, that portion partnership item is not subject to the defi-
negligence computed with reference to the $100
of the change in tax liability attributable ciency procedures, but rather may be di-
underpayment attributable to the partnership item rectly assessed as part of the computa-
adjustments is an affected item. to the partner-level determinations shall
be made under the deficiency procedures tional adjustment that is made following
Example 2. B, a partner of P, understated B’s
income tax liability attributable to nonpartnership (as described in subchapter B of chapter the partnership proceeding, based on de-

October 22, 2001 362 2001–43 I.R.B.
terminations in that proceeding, regard- nations of a tax matters partner occurring in paragraph (b)(2) of this section, the In-
less of whether any partner-level determi- on or after December 23, 1996, except for ternal Revenue Service or the tax matters
nations may be required. paragraphs (p)(2) and (r)(1), that are ap- partner may send any required notice to
(b) Interest. A computational adjust- plicable on or after October 4, 2001. either spouse.
ment includes any interest due with re- (2) Identified spouse entitled to notice.
spect to any underpayment or overpay- § 301.6231(a)(7)–1T [Removed] For purposes of applying section 6223
ment of tax attributable to adjustments to (relating to notice to partners of proceed-
Par. 39a. Section 301.6231(a)(7)–1T is
reflect properly the treatment of partner- ing) for a partnership taxable year, an in-
removed.
ship items. dividual who holds a joint interest in a
Par. 40. Section 301.6231(a)(12)–1 is
(c) Effective date. This section is ap- partnership with a spouse who is entitled
added to read as follows:
plicable to partnership taxable years be- to notice under section 6223 shall be enti-
ginning on or after October 4, 2001. For § 301.6231(a)(12)–1 Special rules tled to receive separate notice under sec-
years beginning prior to October 4, 2001, relating to spouses. tion 6223 if such individual—
see § 301.6231(a)(6)–1T contained in 26 (i) Is identified as a partner on the part-
CFR part 1, revised April 1, 2001. (a) Spouses holding a joint interest— nership return for that taxable year; or
(1) In general. Except as otherwise pro- (ii) Is identified as a partner entitled to
§ 301.6231(a)(6)–1T [Removed] vided in this section, spouses holding a notice as provided in § 301.6223(c)–1(b).
Par. 38a. Section 301.6231(a)(6)–1T is joint interest in a partnership shall be (c) Conversion of partnership items—
removed. treated as separate partners for purposes (1) In general. If spouses holding a joint
Par. 39. Section 301.6231(a)(7)–1 is of subchapter C of chapter 63 of the Inter- interest in a partnership are treated as sep-
amended by revising paragraphs (p)(2), nal Revenue Code. Thus, both spouses arate partners under this section, then sec-
(r)(1), and (s) to read as follows: may participate in administrative and ju- tion 6231(b) (relating to the conversion of
dicial proceedings. The term joint inter- partnership items) shall be applied sepa-
§ 301.6231(a)(7)–1 Designation or est includes tenancies in common, joint rately to each spouse.
selection of tax matters partner. tenancies, tenancies by the entirety, and (2) Example. The following example
community property. illustrates the application of paragraph (c)
***** (2) Identification of joint interest. For of this section:
(p) * * * purposes of this section, an interest shall Example. Husband and Wife own a joint interest
(2) When each general partner is be treated as a joint interest in a partner- in XYZ Partnership. The partnership return identi-
deemed to have no profits interest in the fies both spouses on the Schedule K-1. Under this
ship only if both spouses are identified on section, each spouse is treated as a separate partner.
partnership. If it is impracticable under the partnership return or are identified as If Wife enters into a settlement agreement, Wife’s
paragraph (o)(2) of this section to apply partners entitled to notice as provided in partnership items convert to nonpartnership items
the largest-profits-interest rule of para- § 301.6223(c)–1(b). pursuant to section 6231(b)(1)(C). Accordingly,
graph (m)(2) of this section, the Commis- (3) Failure to identify both spouses as Wife no longer has the right to participate in the part-
sioner will select a partner (including a nership proceeding subsequent to entering into the
partners. If both spouses are not identi- settlement agreement. Pursuant to paragraph (c) of
general or limited partner) as the tax mat- fied as set forth in paragraph (a)(2) of this this section, however, the partnership items of
ters partner in accordance with the criteria section, then the partnership interest shall Husband are not affected by the conversion of the
set forth in paragraph (q) of this section. be treated as separately owned by the partnership items of Wife, and Husband continues to
The Commissioner will notify, within 30 identified spouse. have the right to participate in the partnership pro-
days of the selection, the partner selected, ceeding. This result is the same regardless of
(4) Example. The following example whether the partnership items are reported on a joint
the partnership, and all partners required illustrates the application of paragraph return or on separate returns.
to receive notice under section 6223(a) of (a)(3) of this section: (d) Cross-reference. See § 301.6231(a)
the selection of the tax matters partner, ef- Example. Wife owns an interest in ABC (2)–1(a) for special rules relating to
fective as of the date specified in the no- Partnership and is identified on the Schedule K-1 of
the partnership return. Wife and Husband live in a spouses who file joint returns with indi-
tice.
community property state. The partnership return of viduals holding a separate interest in a
*****
ABC partnership does not identify Husband, and partnership.
(r) * * * (1) In general. If the Commis- Husband is not identified as a partner entitled to notice (e) Effective date. This section is ap-
sioner selects a tax matters partner under as provided in § 301.6223(c)–1(b). Pursuant to para- plicable to partnership taxable years be-
the provisions of paragraph (p)(1) or graph (a)(3) of this section, the partnership interest of
Wife shall be treated as separately owned by Wife. ginning on or after October 4, 2001. For
(p)(3)(i) of this section, the Commis-
(b) Notice and counting rules—(1) In years beginning prior to October 4, 2001,
sioner will notify, within 30 days of the
general. Except as provided in paragraph see § 301.6231(a)(12)–1T contained in 26
selection, the partner selected, the part-
(b)(2) of this section, for purposes of ap- CFR part 1, revised April 1, 2001.
nership, and all partners required to re-
ceive notice under section 6223(a) of the plying section 6223 (relating to notice to § 301.6231(a)(12)–1T [Removed]
selection of the tax matters partner, effec- partners of proceedings) and section
tive as of the date specified in the notice. 6231(a)(1)(B) (relating to the exception Par. 40a. Section 301.6231(a)(12)–1T
***** for small partnerships), spouses holding a is removed.
(s) Effective date. This section applies joint interest in a partnership shall be Par. 41. Section 301.6231(c)–1 is
to all designations, selections, and termi- treated as one partner. Except as provided added to read as follows:

2001–43 I.R.B. 363 October 22, 2001
§ 301.6231(c)–1 Special rules for certain any amount applied, credited, or refunded (iv) Specify the partnership taxable
applications for tentative carryback and as a result of an application described in year to which the election applies; and
refund adjustments based on partnership paragraph (a) of this section may be made (v) Be signed by the partner making the
losses, deductions, or credits. before there is a final partnership-level election.
determination with respect to the losses, (e) Effective date. This section is ap-
(a) Application subject to this section. deductions, or credits on which the appli- plicable to partnership taxable years be-
This section applies in the case of an ap- cation is based. As provided in section ginning on or after October 4, 2001. For
plication under section 6411 (relating to 6213(b)(1), the Internal Revenue Service years beginning prior to October 4, 2001,
tentative carryback and refund adjust- shall mail notice of any such assessment see § 301.6231(c)–1T contained in 26
ments) based on losses, deductions, or to the partner filing the application. The CFR part 1, revised April 1, 2001.
credits of a partnership if the Commis- notice shall also inform the partner of the
sioner, or the Commissioner’s delegate, partner’s limited right to elect to treat § 301.6231(c)–1T [Removed]
determines, after review of the available items as nonpartnership items as provided
relevant information, that it is highly Par. 41a. Section 301.6231(c)–1T is
in paragraph (d) of this section. removed.
likely that a person described in section (d) Limited right to elect to treat items as
6700(a)(1) made, with respect to the part- Par. 42. Section 301.6231(c)–2 is
nonpartnership items—(1) In general. A added to read as follows:
nership— partner to whom the Internal Revenue Ser-
(1) A gross valuation overstatement; or vice mails a notice of suspension of action § 301.6231(c)–2 Special rules for certain
(2) A false or fraudulent statement with on a refund claim under paragraph (c) of refund claims based on losses,
respect to the tax benefits to be secured by this section may elect in accordance with deductions, or credits from abusive tax
reason of holding an interest in the part- this paragraph (d) to have all partnership shelter partnerships.
nership that would be subject to a penalty items for the partnership taxable year in
under section 6700 (relating to penalty for which the losses, deductions, or credits at (a) Claims subject to this section. This
promoting abusive tax shelters, etc.). This issue arose treated as nonpartnership items. section applies in the case of a claim for
section applies only with respect to an ap- credit or refund based on losses, deduc-
(2) Time and place of making election.
plication based upon the original report- tions or credits of a partnership if the
The election shall be made by filing a
ing on the partner’s income tax return of Commissioner, or the Commissioner’s
statement with the Internal Revenue Ser-
partnership losses, deductions, or credits. delegate, determines, after review of
vice office that mailed the notice of sus-
Thus, this section does not apply to a re- available relevant information, that it is
pension. The statement may be filed at
quest for administrative adjustment under highly likely that a person described in
any time—
section 6227 through which a partner section 6700(a)(1) made, with respect to
(i) After the date which is one year after
seeks to change the partner’s reporting of the partnership—
the date on which the partnership return
partnership items on the partner’s income (1) A gross valuation overstatement; or
was filed for the partnership taxable year
tax return (or on an earlier request for ad- (2) A false or fraudulent statement with
in which the items at issue arose; and
ministrative adjustment). respect to the tax benefits to be secured by
(b) Determination of special enforce- (ii) Before the date on which the Inter- reason of holding an interest in the part-
ment area. In the case of an application nal Revenue Service mails to the tax mat- nership that would be subject to a penalty
under section 6411 described in para- ters partner the notice of final partnership under section 6700 (relating to penalty for
graph (a) of this section, precluding an as- administrative adjustment for the partner- promoting abusive tax shelters, etc.). This
sessment under section 6225 that would ship taxable year in which the items at section applies only with respect to a
be permitted under section 6213(b)(3) (re- issue arose. For purposes of this para- claim that is based upon the partner’s
lating to assessments arising out of tenta- graph (d)(2), a partnership return filed be- original reporting on the partner’s income
tive carryback or refund adjustments) fore the last day prescribed by law for its tax return of partnership losses, deduc-
with respect to any amount applied, cred- filing (determined without regard to ex- tions, or credits. Thus, this section does
ited, or refunded as a result of the applica- tensions) shall be treated as filed on the not apply to a request for administrative
tion may encourage the proliferation of last day. adjustment under section 6227 through
abusive tax shelter partnerships and make (3) Contents of the statement. The which a partner seeks to change the part-
the eventual collection of taxes due more statement shall— ner’s reporting of partnership items on the
difficult. Consequently, the Secretary (i) Be clearly identified as an election partner’s income tax return (or on an ear-
hereby determines that such applications to have partnership items treated as non- lier request for administrative adjust-
present special enforcement considera- partnership items because of notification ment). For purposes of this section, any
tions within the meaning of section of an assessment under section income tax return requesting a credit or
6231(c)(1)(E). 6213(b)(3); refund shall be treated as a claim for a
(c) Assessment permitted under section (ii) Identify the partnership by name, credit or refund.
6213(b)(3). Notwithstanding section address, and taxpayer identification num- (b) Determination of special enforce-
6225 (relating to restrictions on assess- ber; ment area. Granting a claim for credit or
ment with respect to partnership items), (iii) Identify the partner making the refund described in paragraph (a) of this
an assessment that would be permitted election by name, address, and taxpayer section may encourage the proliferation
under section 6213(b)(3) with respect to identification number; of abusive tax shelter partnerships and
October 22, 2001 364 2001–43 I.R.B.
make the eventual collection of taxes (iii) Identify the partner making the § 301.6231(c)–4 Termination and
more difficult. Consequently, the Secre- election by name, address, and taxpayer jeopardy assessment.
tary hereby determines that such claims identification number;
present special enforcement considera- (iv) Specify the partnership taxable (a) In general. The treatment of items
tions within the meaning of section year to which the election applies; and as partnership items with respect to a part-
6231(c)(1)(E). (v) Be signed by the partner making the ner against whom an assessment of in-
(c) Action on refund claims suspended. election. come tax under section 6851 (termination
In the case of a claim described in para- (e) Effective date. This section applies assessment) or section 6861 (jeopardy as-
graph (a) of this section, the Internal Rev- with respect to any claim described in sessment) is made will interfere with the
enue Service may mail to the partner fil- paragraph (a) of this section that is filed effective and efficient enforcement of the
ing the claim a notice stating that no on or after October 4, 2001. For claims internal revenue laws. Accordingly, part-
action will be taken on the partner’s claim filed prior to October 4, 2001, see nership items of such a partner arising in
until the completion of the partnership- § 301.6231(c)–2T contained in 26 CFR any partnership taxable year ending with
level proceedings. The notice shall also part 1, revised April 1, 2001. or within the partner’s taxable year for
inform the partner of the partner’s limited which an assessment of income tax under
right to elect to treat items as nonpartner- § 301.6231(c)–2T [Removed] section 6851 or 6861 is made shall be
ship items as provided in paragraph (d) of treated as nonpartnership items as of the
Par. 42a. Section 301.6231(c)–2T is moment before such assessment is made.
this section. removed.
(d) Limited right to elect to treat items (b) Effective date. This section is ap-
Par. 43. Section 301.6231(c)–3 is plicable to partnership taxable years be-
as nonpartnership items—(1) In general. added to read as follows:
A partner to whom the Internal Revenue ginning on or after October 4, 2001. For
Service mails a notice of suspension § 301.6231(c)–3 Limitation on years beginning prior to October 4, 2001,
under paragraph (c) of this section may applicability of §§ 301.6231(c)–4 see § 301.6231(c)–4T contained in 26
elect in accordance with this paragraph through 301.6231(c)–8. CFR part 1, revised April 1, 2001.
(d) to have all partnership items for the § 301.6231(c)–4T [Removed]
partnership taxable year in which the (a) In general. A provision of
losses, deductions, or credits at issue §§ 301.6231(c)–4 through 301.6231(c)–8 Par. 44a. Section 301.6231(c)–4T is
arose treated as nonpartnership items. shall not apply with respect to partnership removed.
(2) Time and place of making election. items arising in a partnership taxable year Par. 45. Section 301.6231(c)–5 is
The election shall be made by filing a if, as of the date on which those items added to read as follows:
statement with the Internal Revenue Ser- would otherwise begin to be treated as non-
partnership items under that provision— § 301.6231(c)–5 Criminal investigations.
vice office that mailed the notice of sus-
pension. The statement may be filed at (1) A notice of final partnership admin- (a) In general. The treatment of items
any time— istrative adjustment with respect to those as partnership items with respect to a part-
(i) After the date which is one year after items has been mailed to the tax matters ner under criminal investigation for viola-
the date on which the partnership return partner; and tion of the internal revenue laws relating
was filed for the partnership taxable year (2) Either— to income tax will interfere with the effec-
in which the items at issue arose; and (i) The period during which an action tive and efficient enforcement of the inter-
(ii) Before the date on which the Inter- with respect to that final partnership ad- nal revenue laws. Accordingly, partner-
nal Revenue Service mails to the tax mat- ministrative adjustment may be brought ship items of such a partner arising in any
ters partner the notice of final partnership under section 6226 has expired and no partnership taxable year ending on or be-
administrative adjustment for the partner- such action has been brought; or fore the last day of the latest taxable year
ship taxable year in which the items at (ii) The decision of the court in an ac- of the partner to which the criminal inves-
issue arose. For purposes of this para- tion brought under section 6226 with re- tigation relates shall be treated as nonpart-
graph (d)(2), a partnership return filed be- spect to that final partnership administra- nership items as of the date on which the
fore the last day prescribed by law for its tive adjustment has become final. partner is notified that the partner is the
filing (determined without regard to ex- (b) Effective date. This section is ap- subject of a criminal investigation and
tensions) shall be treated as filed on the plicable to partnership taxable years be- written notification is sent by the Internal
last day. ginning on or after October 4, 2001. For Revenue Service that the partner’s part-
(3) Contents of the statement. The years beginning prior to October 4, 2001, nership items shall be treated as nonpart-
statement shall— see § 301.6231(c)–3T contained in 26 nership items. The partnership items of a
(i) Be clearly identified as an election CFR part 1, revised April 1, 2001. partner who is notified that the partner is
to have partnership items treated as non- § 301.6231(c)–3T [Removed] the subject of a criminal investigation
partnership items because of notification shall not be treated as nonpartnership
of suspension of action on a refund claim; Par. 43a. Section 301.6231(c)–3T is items under this section unless and until
(ii) Identify the partnership by name, removed. such partner is sent written notification
address, and taxpayer identification num- Par. 44. Section 301.6231(c)–4 is from the Internal Revenue Service of such
ber; added to read as follows: treatment.

2001–43 I.R.B. 365 October 22, 2001
(b) Effective date. This section is ap- due in the bankruptcy proceeding shall be § 301.6231(c)–8T [Removed]
plicable to partnership taxable years be- treated as nonpartnership items as of the
ginning on or after October 4, 2001. For date the petition naming the partner as Par. 48a. Section 301.6231(c)–8T is
years beginning prior to October 4, 2001, debtor is filed in bankruptcy. removed.
see § 301.6231(c)–5T contained in 26 (b) Receivership. The treatment of Par. 49. Section 301.6231(d)–1 is
CFR part 1, revised April 1, 2001. items as partnership items with respect to added to read as follows:
a partner for whom a receiver has been
§ 301.6231(c)–5T [Removed] appointed in any receivership proceeding § 301.6231(d)–1 Time for determining
before any court of the United States or of profits interest of partners for purposes of
Par. 45a. Section 301.6231(c)–5T is sections 6223(b) and 6231(a)(11).
removed. any State or the District of Columbia will
Par. 46. Section 301.6231(c)–6 is interfere with the effective and efficient
(a) Partner owns interest at close of
added to read as follows: enforcement of the internal revenue laws.
year. For purposes of section 6223(b)
Accordingly, partnership items of such a
(relating to special rules for partnerships
§ 301.6231(c)–6 Indirect method of proof partner arising in any partnership taxable
with more than 100 partners) and section
of income. year ending on or before the last day of
6231(a)(11) (relating to 5-percent
the latest taxable year of the partner with
(a) In general. The treatment of items groups), except as otherwise provided in
respect to which the United States could
as partnership items with respect to a part- this section, the profits interest held by a
file a claim for income tax due in the re-
ner whose taxable income is determined partner, directly or indirectly through one
ceivership proceeding shall be treated as
by use of an indirect method of proof of or more pass-thru partners, in a partner-
nonpartnership items as of the date a re-
income will interfere with the effective ship (the source partnership) to which
ceiver is appointed in any receivership
and efficient enforcement of the internal subchapter C of chapter 63 of the Internal
proceeding before any court of the United
revenue laws. Accordingly, partnership Revenue Code applies shall be deter-
States or of any State or the District of
items of such a partner arising in any part- mined at the close of the source partner-
Columbia.
nership taxable year ending on or before ship’s taxable year.
(c) Effective date. This section is ap-
the last day of the taxable year of the part- (b) Partner does not own interest at
plicable to partnership taxable years be-
ner for which a deficiency notice based close of year. If the entire direct and indi-
ginning on or after October 4, 2001. For
upon an indirect method of proof of in- rect interest of a partner in a source part-
years beginning prior to October 4, 2001,
come is mailed to the partner shall be nership is terminated by virtue of a dispo-
see § 301.6231(c)–7T contained in 26
treated as nonpartnership items as of the sition by such partner of such interest (or
CFR part 1, revised April 1, 2001.
date on which that deficiency notice is by virtue of the disposition of an interest
mailed to the partner. § 301.6231(c)–7T [Removed] held by one or more pass-thru partners
(b) Effective date. This section is ap- through which the partner holds an inter-
plicable to partnership taxable years be- Par. 47a. Section 301.6231(c)–7T is est), then the profits interest of such part-
ginning on or after October 4, 2001. For removed. ner in the source partnership shall be mea-
years beginning prior to October 4, 2001, Par. 48. Section 301.6231(c)–8 is sured as of the moment before the
see § 301.6231(c)–6T contained in 26 added to read as follows: disposition causing such termination. The
CFR part 1, revised April 1, 2001. preceding sentence shall not apply with
§ 301.6231(c)–8 Prompt assessment.
respect to a termination if subsequent to
§ 301.6231(c)–6T [Removed] (a) In general. The treatment of items such termination and before the close of
as partnership items with respect to a part- the source partnership’s taxable year the
Par. 46a. Section 301.6231(c)–6T is
ner on whose behalf a request for a partner acquires a direct or indirect inter-
removed.
prompt assessment of tax under section est in the source partnership.
Par. 47. Section 301.6231(c)–7 is
6501(d) is filed will interfere with the ef- (c) Disposition of last remaining por-
added to read as follows:
fective and efficient enforcement of the tion of interest is disposition of entire in-
§ 301.6231(c)–7 Bankruptcy and internal revenue laws. Accordingly, part- terest. If a partner (or a pass-thru partner
receivership nership items of such a partner arising in through which a partner holds an interest)
any partnership taxable year ending with makes several partial dispositions of an
(a) Bankruptcy. The treatment of items or within any taxable year of the partner interest in a source partnership during a
as partnership items with respect to a part- with respect to which a request for a taxable year of the source partnership,
ner named as a debtor in a bankruptcy pro- prompt assessment of tax is filed shall be paragraph (b) of this section will apply
ceeding will interfere with the effective treated as nonpartnership items as of the with respect to the disposition which
and efficient enforcement of the internal date that the request is filed. causes a termination of the partner’s en-
revenue laws. Accordingly, partnership (b) Effective date. This section is ap- tire direct and indirect interest in the
items of such a partner arising in any part- plicable to partnership taxable years be- source partnership.
nership taxable year ending on or before ginning on or after October 4, 2001. For (d) No profits interest in certain cases.
the last day of the latest taxable year of the years beginning prior to October 4, 2001, If—
partner with respect to which the United see § 301.6231(c)–8T contained in 26 (1) The interest of a partner in a part-
States could file a claim for income tax CFR part 1, revised April 1, 2001. nership is entirely disposed of before the

October 22, 2001 366 2001–43 I.R.B.
close of the taxable year of the partner- § 301.6231(d)–1T [Removed] see § 301.6231(e)–2T contained in 26
ship; and CFR part 1, revised April 1, 2001.
(2) No items of the partnership for that Par. 49a. Section 301.6231(d)–1T is
taxable year are required to be taken into removed. § 301.6231(e)–2T [Removed]
account by the partner, then that partner Par. 50. Section 301.6231(e)–1 is
added to read as follows: Par. 51a. Section 301.6231(e)–2T is
has no profits interest in the partnership removed.
for that taxable year. § 301.6231(e)–1 Effect of a Par. 52. Section 301.6231(f)–1 is
(e) Examples. The provisions of this determination with respect to a added to read as follows:
section may be illustrated by the follow- nonpartnership item on the determination
ing examples. Assume in all examples of a partnership item. § 301.6231(f)–1 Disallowance of losses
that there have been no reacquisitions and credits in certain cases.
prior to the close of the source partner- (a) In general. The determination of
ship’s taxable year. The examples are as an item after it has become a nonpartner- (a) Application of section. This section
follows: ship item with respect to a partner is not applies if—
Example 1. B holds an interest in partnership P controlling in the determination of that (1) A partnership, whether domestic or
through T, a pass-thru partner. P uses a fiscal year
item with respect to other partners. Thus, foreign, that is required to file a return
ending June 30 as P’s taxable year; B and T use the under section 6031 for a taxable year fails
calendar year as the taxable year. As of the close of for example, the determination by a court
in a separate proceeding relating to a to file the return within the time pre-
P’s taxable year ending June 30, 2002, T holds an
interest in P and B holds an interest in P through T. partner that a certain partnership expen- scribed; and
The profits interest held by B in P through T for that diture was deductible does not bind either (2) At any time after the close of that
year is determined as of June 30, 2002.
the Internal Revenue Service or the other taxable year, either—
Example 2. Assume the same facts as in Example (i) The tax matters partner of that part-
1, except that B sold the entire interest that B held in partners in a later partnership or other
proceeding. nership resides outside the United States;
P through T on November 5, 2001. The profits inter-
est held by B in P through T for P’s taxable year end- (b) Effective date. This section is ap- or
ing June 30, 2002, is determined as of the moment plicable to partnership taxable years be- (ii) The books and records of that part-
before the sale on November 5, 2001.
ginning on or after October 4, 2001. For nership are maintained outside the United
Example 3. C holds an interest in partnership P States.
through T, a pass-thru partner. C, P, and T all use the years beginning prior to October 4, 2001,
see § 301.6231(e)–1T contained in 26 (b) Computational adjustment permit-
calendar year as the taxable year. T disposes of T’s
interest in P on June 5, 2002. The profits interest CFR part 1, revised April 1, 2001. ted if return is not filed after mailing of
held by C in P through T for 2002 is determined as notice. Except as otherwise provided in
of the moment before the disposition on June 5, § 301.6231(e)–1T [Removed] paragraph (c) of this section, if—
2002. (1) This section applies with respect to
Example 4. Assume the same facts as in Example Par. 50a. Section 301.6231(e)–1T is a partnership for a partnership taxable
3, except that C sold C’s entire interest in T (and, removed.
therefore, C’s entire interest that C held in P through year;
Par. 51. Section 301.6231(e)–2 is (2) The Internal Revenue Service mails
T) on March 15, 2002. The profits interest held by
C in P through T for 2002 is determined as of the added to read as follows: notice to a partner that the losses and
moment before the sale on March 15, 2002. credits arising from that partnership for
Example 5. On January 1, 2002, D held a 2 per- § 301.6231(e)–2 Judicial decision not a
bar to certain adjustments. that year will be disallowed to that partner
cent profits interest in partnership P. Both D and P
use the calendar year as the taxable year. On August unless the partnership files a return for
1, 2002, D transfers three-fourths of D’s profits (a) In general. A court decision with that year within 60 days after the date on
interest in P to E. On September 1, 2002, D sells D’s respect to a partner’s income tax liability which the notice is mailed; and
remaining .5 percent profits interest in P to F. For attributable to nonpartnership items shall (3) The partnership fails to file a return
purposes of sections 6223(b) and 6231(a)(11), D had
not be a bar to further proceedings with for that year within that 60-day period,
a .5 percent profits interest in P for 2002.
Example 6. Assume the same facts as in Example respect to that partner’s income tax liabil- the Internal Revenue Service may, with-
5, except that on January 1, 2002, D also held a 1 ity if that partner’s partnership items be- out conducting a partnership-level pro-
percent profits interest in partnership P through T, a come nonpartnership items after the ceeding, mail a notice of computational
pass-thru partner which also uses the calendar year appropriate time to include such nonpart- adjustment to that partner to reflect the
as the taxable year. In addition to the sale to E on
nership items in the earlier court proceed- disallowance of any loss (including a cap-
August 1, 2002, D sold a portion of D’s interest in T
on December 1, 2002, such that after the sale, D held ing has passed. Thus, the Internal Rev- ital loss) or credit arising from that part-
a .2 percent profits interest in P through T. D made enue Service could issue a later nership for that year.
no other transfers of interests in either P or T. For deficiency notice for the same taxable (c) Restriction on notices under para-
purposes of sections 6223(b) and 6231(a)(11), D had year with respect to that partner or that graph (b) of this section. Neither the no-
a .7 percent profits interest in P for 2002.
partner could bring a refund suit with re- tice referred to in paragraph (b)(2) of this
(f) Effective date. This section is ap- spect to those items that have become section nor the notice of computational
plicable to partnership taxable years be- nonpartnership items. adjustment referred to in paragraph (b) of
ginning on or after October 4, 2001. For (b) Effective date. This section is ap- this section may be mailed on a day on
years beginning prior to October 4, 2001, plicable to partnership taxable years be- which—
see § 301.6231(d)–1T contained in 26 ginning on or after October 4, 2001. For (1) The tax matters partner of the partner-
CFR part 1, revised April 1, 2001. years beginning prior to October 4, 2001, ship resides within the United States; and

2001–43 I.R.B. 367 October 22, 2001
(2) The books and records of the partner- spect to all items of the entity that would Par. 54. The authority for Part 602 con-
ship are maintained within the United be partnership items, as defined in section tinues to read as follows:
States. Thus, if this section applies with re- 6231(a)(3) and the regulations thereunder, Authority: 26 U.S.C.7805.
spect to a partnership for a taxable year if such entity had been a partnership in Par. 55. Section 602.101, paragraph (b)
solely because the tax matters partner of that such taxable year (including, for example, is amended by removing the entries for
partnership resided outside the United any amounts taxable to an entity deter- “301.6222(a)–2T”, “301.6222(b)–1T”,
States for a period after the close of that tax- mined to be an association taxable as a “301.6222(b)–2T”, “301.6222(b)–3T”,
able year and the tax matters partner later corporation). For example, a final deter- “301.6227(b)–1T”, and adding the fol-
takes up residence within the United States, mination under subchapter C that an en- lowing entries to the table in numerical
no notice may be mailed under paragraph tity that filed a partnership return is an as- order:
(b) of this section while the tax matters part- sociation taxable as a corporation will
ner resides within the United States. serve as a basis for a computational ad- § 602.101 OMB Control numbers.
(d) No disallowance in certain circum- justment reflecting the disallowance of *****
stances. If the person to whom the notice any loss or credit claimed by a purported (b) * * *
referred to in paragraph (b)(2) of this sec- partner with respect to that entity.
tion is mailed establishes to the satisfac- (b) Partnership return filed but no en- CFR part or section
tion of the Internal Revenue Service— tity found to exist— Paragraph (a) of this where identified Current OMB
(1) That the losses and credits arising section shall apply where a partnership re- and described control No.
from the partnership for the year are turn is filed for a taxable year but it is de-
proper; and termined that there is no entity for such * * * * *
(2) That the partner has made a good taxable year. For purposes of applying 301.6222(a)–2 . . . . . . . . . . . 1545–0790
faith effort to have the partnership file the paragraph (a) of this section, the partner- 301.6222(b)–1 . . . . . . . . . . . 1545–0790
required return; the Internal Revenue Ser- ship return shall be treated as if it were 301.6222(b)–2 . . . . . . . . . . . 1545–0790
vice may allow the losses and credits in filed by an entity. However, any final 301.6222(b)–3 . . . . . . . . . . . 1545–0790
whole or in part. partnership administrative adjustment or 301.6223(b)–1 . . . . . . . . . . . 1545–0790
(e) Effective date. This section is ap- judicial determination resulting from a 301.6223(c)–1 . . . . . . . . . . . 1545–0790
plicable to partnership taxable years be- proceeding under subchapter C with re- 301.6223(e)–2 . . . . . . . . . . . 1545–0790
ginning on or after October 4, 2001. For spect to such taxable year may also in- 301.6223(g)–1 . . . . . . . . . . . 1545–0790
years beginning prior to October 4, 2001, clude a determination that there is no en- 301.6223(h)–1 . . . . . . . . . . . 1545–0790
see § 301.6231(f)–1T contained in 26 tity for such taxable year. 301.6224(b)–1 . . . . . . . . . . . 1545–0790
CFR part 1, revised April 1, 2001. (c) Exceptions. Paragraph (a) of this 301.6224(c)–1 . . . . . . . . . . . 1545–0790
section shall not apply to— 301.6224(c)–3 . . . . . . . . . . . 1545–0790
§ 301.6231(f)–1T [Removed] (1) Entities for any taxable year in 301.6227(c)–1 . . . . . . . . . . . 1545–0790
which such entity would be excepted 301.6227(d)–1 . . . . . . . . . . . 1545–0790
Par. 52a. Section 301.6231(f)–1T is re-
from the provisions of subchapter C of the 301.6229(b)–2 . . . . . . . . . . . 1545–0790
moved.
Internal Revenue Code under section 301.6230(b)–1 . . . . . . . . . . . 1545–0790
Par. 53. Section 301.6233–1 is added
6231(a)(1)(B) and the regulations there- 301.6230(e)–1 . . . . . . . . . . . 1545–0790
to read as follows:
under (relating to the exception for small 301.6231(a)(1)–1 . . . . . . . . . 1545–0790
§ 301.6233–1 Extension to entities filing partnerships) if such entity were a part- * * * * *
partnership returns. nership for such taxable year; and
(2) Entities for any taxable year for 301.6231(c)–1 . . . . . . . . . . . 1545–0790
(a) Entities filing a partnership return. which a partnership return was filed for 301.6231(c)–2 . . . . . . . . . . . 1545–0790
Except as provided in paragraph (c)(1) of the sole purpose of making the election
this section, the provisions of subchapter * * * * *
described in section 761(a).
C of chapter 63 of the Internal Revenue (d) Effective dates. This section is ap-
Code (subchapter C) and the regulations Robert E. Wenzel,
plicable to partnership taxable years be- Deputy Commissioner
thereunder shall apply with respect to any ginning on or after October 4, 2001. For
taxable year of an entity for which such of Internal Revenue Service.
years beginning prior to October 4, 2001,
entity files a partnership return as well as see § 301.6233–1T contained in 26 CFR Approved September 20, 2001.
to such entity’s items for that taxable year part 1, revised April 1, 2001.
and to any person holding an interest in Mark Weinberger,
such entity at any time during that taxable § 301.6233–1T [Removed] Assistant Secretary of the Treasury.
year. Any final partnership administrative
(Filed by the Office of the Federal Register on Octo-
adjustment or judicial determination re- Par. 53a. Section 301.6233–1T is re-
ber 3, 2001, 8:45 a.m., and published in the issue of
sulting from a proceeding under subchap- moved. the Federal Register for October 4, 2001, 66 F.R.
ter C with respect to such taxable year 50541)
may include a determination that the en- PART 602 — OMB CONTROL
tity is not a partnership for such taxable NUMBERS UNDER THE
year as well as determinations with re- PAPERWORK REDUCTION ACT

October 22, 2001 368 2001–43 I.R.B.
Part III. Administrative, Procedural, and Miscellaneous
Weighted Average Interest Rate interest rates used to calculate current lia- The average yield on the 30-year
Update bility for the purpose of the full funding Treasury Constant Maturities for
limitation of § 412(c)(7) of the Internal September 2001 is 5.48 percent.
Notice 2001–65 Revenue Code as amended by the The following rates were determined
Omnibus Budget Reconciliation Act of for the plan years beginning in the month
Notice 88–73 provides guidelines for 1987 and as further amended by the shown below.
determining the weighted average interest Uruguay Round Agreements Act, Pub. L.
rate and the resulting permissible range of 103–465 (GATT).

90% to 105% 90% to 110%
Weighted Permissible Permissible
Month Year Average Range Range

October 2001 5.76 5.18 to 6.05 5.18 to 6.34

Drafting Information Special Industries), the Associate Chief § 631(b) applies, and (2) an S corporation
Counsel (Procedure and Administration), holds coal or domestic iron ore property
The principal author of this notice is and the Division Counsel/Associate Chief on the date it converts from a C corpora-
Todd Newman of the Employee Plans, Counsel (Tax Exempt and Government tion to an S corporation (or acquires coal
Tax Exempt and Government Entities Entities) relating to issues on which the or domestic iron ore property from a C
Division. For further information regard- Internal Revenue Service will not issue corporation in a transaction to which
ing this notice, please call Mr. Newman at letter rulings or determination letters. § 1374(d)(8) applies) and during the
(202) 283-9702 (not a toll-free number). .02 Section 5 of Rev. Proc. 2001–3 sets recognition period recognizes gain or loss
forth those areas under extensive study in on the disposal of the coal or iron ore
which letter rulings or determination let- under a contract to which § 631(c) applies.
26 CFR 601.201: Rulings and determination
letters. ters will not be issued until the Service
resolves the issue through publication of a SECTION 3. PROCEDURE
Rev. Proc. 2001–51 revenue ruling, revenue procedure, or oth- Rev. Proc. 2001–3 is modified by delet-
erwise. ing section 5.06.
SECTION 1. PURPOSE AND NATURE Section 5.06 of Rev. Proc. 2001–3 pro-
OF CHANGE vides as follows: SECTION 4. EFFECT ON OTHER
Section 1374.—Tax Imposed on Certain DOCUMENTS
.01 The purpose of this revenue proce- Built-in Gains — The tax consequences
dure is to modify Rev. Proc. 2001–3 under § 1374 in the following situations: Rev. Proc. 2001–3 is modified.
(2001–1 I.R.B. 111) by removing section (1) an S corporation holds timber property SECTION 5. EFFECTIVE DATE
5.06 from the No-Rule list. Section 5.06 on the date it converts from a C corpora-
concerns the application of § 1374 of the tion to an S corporation (or acquires tim- This revenue procedure is effective
Internal Revenue Code to timber, coal and ber property from a C corporation in a October 9, 2001, the date of its release to
domestic iron ore transactions. transaction to which § 1374(d)(8) applies) the public.
and during the recognition period (a) cuts
SECTION 2. BACKGROUND the timber and sells resulting wood prod- DRAFTING INFORMATION
.01 Rev. Proc. 2001–3 sets forth those ucts (including any unfinished or finished The principal author of this revenue
provisions of the Internal Revenue Code products derived, manufactured, or pro- procedure is Cristian P. Silva of the Office
under the jurisdiction of the Associate duced from such wood products) in a of Associate Chief Counsel (Corporate).
Chief Counsel (Corporate), the Associate transaction to which § 631 does not apply, For further information about this revenue
Chief Counsel (Financial Institutions & (b) recognizes gain or loss on cutting the procedure, please contact Mr. Silva at
Products), the Associate Chief Counsel timber pursuant to a § 631(a) election, or (202) 622-7750 (not a toll-free call).
(Income Tax & Accounting), the (c) recognizes gain or loss on the disposal
Associate Chief Counsel (Passthroughs & of timber under a contract to which

2001–43 I.R.B. 369 October 22, 2001
Part IV. Items of General Interest
Notice of Proposed Rulemaking SUPPLEMENTARY INFORMATION: so in a written agreement or if a divorce or
and Notice of Public Hearing separation agreement requires such treat-
Paperwork Reduction Act ment. This information must be retained
Constructive Transfers and The collection of information contained and is required for the spouses or former
Transfers of Property to a Third in this notice of proposed rulemaking has spouses to report properly the tax conse-
Party on Behalf of a Spouse been submitted to the Office of quences of the redemption. The likely
Management and Budget for review in respondents are individuals.
REG–107151–00 accordance with the Paperwork Reduction Estimated total annual reporting and/or
Act of 1995 (44 U.S.C. 3507(d)). recordkeeping burden: 500 hours.
AGENCY: Internal Revenue Service
Comments on the collection of informa- Estimated average annual burden hours
(IRS), Treasury.
tion should be sent to the Office of per respondent and/or recordkeeper: 30
ACTION: Notice of proposed rulemaking Management and Budget, Attn: Desk minutes.
and notice of public hearing. Officer for the Department of the Estimated number of respondents
Treasury, Office of Information and and/or recordkeepers: 1,000
SUMMARY: This document contains Estimated annual frequency of respons-
proposed regulations under section 1041 Regulatory Affairs, Washington, DC
20503, with copies to the Internal es: On occasion
of the Internal Revenue Code relating to An agency may not conduct or sponsor,
the tax treatment of certain redemptions, Revenue Service, Attn: IRS Reports
Clearance Officer, W:CAR:MP:FP:S, and a person is not required to respond to,
during marriage or incident to divorce, of a collection of information unless it dis-
stock owned by a spouse or former Washington, DC 20224. Comments on
the collection of information should be plays a valid control number assigned by
spouse. This document also provides the Office of Management and Budget.
notice of a public hearing on the proposed received by October 2, 2001. Comments
are specifically requested concerning: Books or records relating to a collec-
regulations. tion of information must be retained as
Whether the proposed collection of
DATES: Written comments must be information is necessary for the proper long as their contents may become mater-
received by November 1, 2001. Requests performance of the functions of the ial in the administration of any internal
to speak and outlines of topics to be dis- Internal Revenue Service, including revenue law. Generally, tax returns and
cussed at the public hearing scheduled for whether the information will have practi- tax return information are confidential, as
Friday, December 14, 2001, must be cal utility; required by 26 U.S.C. 6103.
received by November 23, 2001. The accuracy of the estimated burden Background
ADDRESSES: Send submissions to: associated with the proposed collection of
CC:ITA:RU (REG–107151–00), room information (see below); Section 1041 was added to the Internal
5226, Internal Revenue Service, POB 7604, How the quality, utility, and clarity of Revenue Code by section 421 of the Tax
Ben Franklin Station, Washington, DC the information to be collected may be Reform Act of 1984 (1984 Act), Public
20044. Submissions may be hand delivered enhanced; Law 98–369. Section 1041(a) provides
between the hours of 8 a.m. and 5 p.m. to How the burden of complying with the that no gain or loss will be recognized on
CC:ITA:RU (REG–107151–00), Courier’s proposed collection of information may a transfer of property from an individual
Desk, Internal Revenue Service, 1111 be minimized, including through the to (or in trust for the benefit of) a spouse
Constitution Avenue NW, Washington, DC. application of automated collection tech- or former spouse if the transfer is incident
Alternatively, taxpayers may submit com- niques or other forms of information tech- to a divorce. Under section 1041(b), for
nology; and purposes of subtitle A, the transferee is
ments electronically via the Internet by
Estimates of capital or start-up costs treated as having acquired the property by
selecting the “Tax Regs” option on the IRS
and costs of operation, maintenance, and gift from the transferor with a carryover
Home Page, or by submitting comments
purchase of services to provide informa- basis from the transferor.
directly to the IRS Internet site at
tion. The House Report accompanying the
http://www.irs.gov/tax_regs/regslist.html.
The collection of information in this 1984 Act states:
The public hearing will be held in the
proposed regulation is in § 1.1041–2(c) of The current rules governing trans-
Auditorium, Internal Revenue Build-
these regulations. Section 1.1041–2(c) fers of property between spouses or
ing, 1111 Constitution Avenue NW,
permits spouses or former spouses to treat former spouses incident to divorce have
Washington, DC.
a redemption of stock of one spouse (the not worked well and have led to much
FOR FURTHER INFORMATION CON- first spouse) as a transfer of that stock to controversy and litigation. Often the
TACT: Concerning the proposed regula- the other spouse (the second spouse) in rules have proved a trap for the unwary
tions, Edward C. Schwartz (202) 622- exchange for the redemption proceeds and ....
4960; concerning submissions and the a redemption of the stock from the second Furthermore, in divorce cases, the
hearing, Guy Traynor (202) 622-7180 spouse in exchange for the redemption government often gets whipsawed.
(not toll-free numbers). proceeds if they reflect their intent to do The transferor will not report any gain

October 22, 2001 370 2001–43 I.R.B.
on the transfer, while the recipient spouse to a third party that is on behalf of the redemption was on behalf of the hus-
spouse, when he or she sells, is entitled the other spouse or former spouse (non- band and, therefore, was not taxable to the
under [United States v. Davis, 370 U.S. transferor spouse) if: (i) the transfer to the wife, because it found that the husband
65 (1962)] to compute his or her gain third party is required by the divorce or had an obligation under the property set-
or loss by reference to a basis equal to separation instrument; (ii) the transfer to tlement to purchase the wife’s stock and
the fair market value of the property at the third party is pursuant to the written the husband was benefitted by the
the time received. request of the nontransferor spouse; or redemption. The Ninth Circuit did not
The committee believes that to (iii) the transferor spouse receives from address the tax treatment of the husband,
correct these problems and make the the nontransferor spouse a written consent although it implied that the husband might
tax laws as unintrusive as possible with or ratification of the transfer to the third be taxable on the redemption.
respect to relations between spouses, party. If Q&A-9 applies, a direct transfer The Tax Court in Arnes addressed
the tax laws governing transfers be- of property to a third party is treated first whether the husband was taxable on the
tween spouses and between former as a transfer to the nontransferor spouse in redemption. The Tax Court stated that the
spouses should be changed. . . . a transaction governed by section 1041 question was whether the husband had a
The bill provides that the transfer and then as an immediate transfer by the constructive dividend; that is, whether he
of property to a spouse incident to a di- nontransferor spouse to the third party in had a “primary and unconditional obliga-
vorce will be treated, for income tax a transaction not governed by section tion” to purchase the stock. The court
purposes, in the same manner as a gift. 1041. concluded that the husband did not have a
Gain (including recapture income) or Q&A-9 has provided spouses and for- primary and unconditional obligation to
loss will not be recognized to the trans- mer spouses with the ability to shift purchase the wife’s stock and, therefore,
feror, and the transferee will receive the between themselves the tax consequences the redemption of the wife’s stock did not
property at the transferor’s basis . . . . of a sale of property outside the marital result in a constructive dividend to the
Thus, uniform Federal income tax con- unit. However, the questions of what husband. This conclusion, the court stat-
sequences will apply to these transfers standard should be applied for purposes of ed, was supported by the IRS’s position in
notwithstanding that the property may determining whether a transfer of proper- Rev. Rul. 69–608 (1969–2 C.B. 43). Rev.
be subject to differing state property ty is, or is not, “on behalf of” the non- Rul. 69–608 holds that a corporation’s
laws. transferor spouse for purposes of section redemption of its stock from a sharehold-
H. R. Rep. No. 432, 98th Cong., 2d Sess., 1041, and whether the same standard er (the first shareholder) results in a con-
Part 2, at 1491–92 (1984) (House Report). should be applied for purposes of deter- structive distribution to another share-
By enacting the carryover basis rules in mining the tax treatment of the transferor holder (the second shareholder) if the
section 1041(b), Congress has, in essence, spouse and the nontransferor spouse redemption is in satisfaction of the second
provided spouses with a mechanism for under provisions of the Internal Revenue shareholder’s primary and unconditional
determining between themselves which Code other than section 1041, have obligation to purchase the first sharehold-
one will pay tax upon the disposition of become the source of much confusion and er’s stock. The majority opinion of the
property outside the marital unit. For litigation in the context of certain stock Tax Court in Arnes expressly declined to
example, assume Spouse A owns appreci- redemptions. For instance, the United opine as to whether the “on behalf of”
ated property that he or she wishes to sell States Court of Appeals for the Ninth standard of Q&A-9 is the same as the
to a third party. The spouses may agree Circuit in Arnes v. United States, 981 F.2d “primary and unconditional obligation”
that Spouse A will sell the property to the 456 (9th Cir. 1992) (regarding the tax standard applicable to constructive distri-
third party and recognize the gain. Any treatment of the transferor spouse), and butions.
subsequent transfer from Spouse A to the Tax Court in Arnes v. Commissioner, The uncertainty has persisted in subse-
Spouse B of the sales proceeds will be 102 T.C. 522 (1994) (regarding the tax quent cases. In Read v. Commissioner,
nontaxable under section 1041. In the treatment of the nontransferor spouse), 114 T.C. 14 (2000), the Tax Court reject-
alternative, the spouses may agree that applied different standards to determine ed equating the “primary and uncondi-
Spouse A will first transfer the property to the tax treatment of the transferor spouse tional obligation” standard with the “on
Spouse B. This transfer is nontaxable and the nontransferor spouse, respective- behalf of” standard in Q&A-9 for purpos-
under section 1041, with Spouse B taking ly, in the context of a redemption of stock es of determining the tax consequences of
a carryover basis in the transferred prop- owned by the transferor spouse. a stock redemption to the transferor
erty. Spouse B will then recognize the Consequently, neither spouse was taxed spouse. The Tax Court concluded that the
gain or loss on the sale of the property to on the redemption proceeds, a result that appropriate standard for determining
the third party because a sale to a third Congress clearly sought to avoid in enact- whether a transfer of property to a third
party is not covered by section 1041. In ing section 1041. See House Report at party by a transferor spouse was on behalf
this latter scenario, the tax consequences 1491. of the nontransferor spouse under Q&A-9
of the sale are shifted to Spouse B. In the Arnes cases, a husband and wife was whether the transferor spouse was
Under § 1.1041–1T(c), Q&A-9, of the owned all the stock of a corporation. The acting “as the representative of” or “in the
Temporary Income Tax Regulations divorce instrument required the wife to interest of” the nontransferor spouse or
(Q&A-9), section 1041 will apply to a tender her stock to the corporation for whether the transfer satisfied a liability or
transfer of property by the transferor redemption. The Ninth Circuit held that an obligation of the nontransferor spouse.

2001–43 I.R.B. 371 October 22, 2001
See also Blatt v. Commissioner, 102 T.C. redeeming corporation in exchange for exchange for the stock and then to be
77 (1994). the redemption proceeds from the transferred by the nontransferor spouse to
Because of these inconsistent stan- redeeming corporation are determined the transferor spouse. The special rule
dards, the regulations must be amended to under applicable provisions of the Internal will apply if a divorce or separation
provide greater certainty in determining Revenue Code (other than section 1041) instrument, or a written agreement
which spouse will be taxed on certain as if such transfers had actually occurred. between the transferor spouse and the
stock redemptions occurring during mar- Where applicable law does not treat a nontransferor spouse, requires the trans-
riage or incident to divorce. transferor spouse’s receipt of property in feror spouse and the nontransferor spouse
respect of stock redeemed as resulting in a to file their Federal income tax returns in
Explanation of Provisions constructive distribution to the nontrans- a manner that reflects that the transferor
The proposed regulations apply where, feror spouse, the form of the stock spouse transferred the redeemed stock to
under current law, the “primary and redemption is respected. In other words, the nontransferor spouse in exchange for
unconditional obligation” standard applic- the transferor spouse and the redeeming the redemption proceeds and the corpora-
able to constructive distributions governs corporation are respected as parties to the tion redeemed the stock from the non-
the tax consequences to one spouse or for- redemption transaction, and thus the transferor spouse in exchange for the
mer spouse of a redemption of stock transferor spouse, not the nontransferor redemption proceeds. Such divorce or
owned by the other spouse or former spouse, is treated as a party to the redemp- separation instrument must be effective,
spouse. Accordingly, the proposed regu- tion. or the written agreement must be execut-
lations provide that they apply only where The approach of the proposed regula- ed by both spouses or former spouses,
the nontransferor spouse owns stock of tions recognizes that applicable tax law prior to the date on which the nontransfer-
the redeeming corporation either immedi- currently imposes the primary and uncon- or spouse files such spouse’s first timely
ately before or immediately after the stock ditional obligation standard, which has its filed Federal income tax return for the
redemption. origins in well-established case law year that includes the date of the redemp-
The proposed regulations provide that, including Wall v. United States, 164 F.2d tion, but no later than the date such return
if a corporation redeems stock owned by a 462 (4th Cir. 1947), and Sullivan v. United is due (including extensions). The special
transferor spouse, and the transferor States, 363 F.2d 724 (8th Cir. 1966), for rule is provided to give spouses and for-
spouse’s receipt of property in respect of determining whether a shareholder has mer spouses a means of ensuring the
such stock is treated, under applicable tax received a constructive distribution. The application of those Federal income tax
law, as resulting in a constructive distribu- proposed regulations are designed to consequences that would have resulted
tion to the nontransferor spouse, then the remove inconsistencies caused by the had applicable tax law treated the trans-
stock redeemed is deemed first to be simultaneous potential application of the feror spouse’s stock redemption as result-
transferred by the transferor spouse to the on behalf of standard of Q&A-9 for one ing in a constructive distribution to the
nontransferor spouse and then to be trans- spouse and the primary and unconditional nontransferor spouse.
ferred by the nontransferor spouse to the obligation standard of the case law for the
other spouse. Thus, for example, if the Proposed Effective Date
redeeming corporation. Section 1041
applies to the deemed transfer of the stock rules of the proposed regulations had The proposed regulations are applica-
by the transferor spouse to the nontrans- applied in the Arnes case, because the ble to redemptions of stock on or after the
feror spouse, provided the requirements of husband did not have a primary and date the regulations in this section are
section 1041 are otherwise satisfied with unconditional obligation to purchase the published as final regulations, except for
respect to such deemed transfer. Section wife’s stock, the redemption would have redemptions of stock that are pursuant to
1041 does not apply to the deemed trans- been taxed in accordance with its form instruments in effect before the date the
fer of stock from the nontransferor spouse with the result that the wife would have regulations in this section are published as
to the redeeming corporation. Any prop- incurred the tax consequences of the final regulations. For redemptions of
erty actually received by the transferor redemption. stock before the date the regulations in
spouse from the redeeming corporation in The proposed regulations provide a this section are published as final regula-
respect of the redeemed stock is deemed special rule that permits spouses and for- tions and redemptions of stock that are
first to be transferred by the redeeming mer spouses to treat a redemption of the pursuant to instruments in effect before
corporation to the nontransferor spouse in transferor spouse’s stock as a deemed the date the regulations in this section are
exchange for the stock in a transaction to transfer of the redeemed stock by the published as final regulations, see
which section 1041 does not apply, and transferor spouse to the nontransferor § 1.1041–1T(c), A-9. However, these reg-
then to be transferred by the nontransferor spouse and then a deemed transfer of the ulations will be applicable to redemptions
spouse to the transferor spouse in a trans- redeemed stock by the nontransferor described in the preceding sentence if the
action to which section 1041 applies, pro- spouse to the redeeming corporation, and spouses or former spouses execute a writ-
vided the requirements of section 1041 to treat any property actually received by ten agreement on or after August 3, 2001,
are otherwise satisfied with respect to the transferor spouse from the redeeming that satisfies the requirements of para-
such deemed transfer. The tax conse- corporation in respect of the redeemed graph (c) of these regulations with respect
quences of the deemed transfer of stock stock as first transferred by the redeeming to such redemption.
from the nontransferor spouse to the corporation to the nontransferor spouse in

October 22, 2001 372 2001–43 I.R.B.
Special Analysis The rules of 26 CFR 601.601(a)(3) (transferor spouse), and the transferor
apply to the hearing. spouse’s receipt of property in respect of
It has been determined that this notice Persons that wish to present oral com- such redeemed stock is treated, under
of proposed rulemaking is not a signifi- ments at the hearing must submit timely applicable tax law, as resulting in a con-
cant regulatory action as defined in written or electronic comments and must structive distribution to the other spouse or
Executive Order 12866. Therefore, a reg- submit an outline of the topics to be dis- former spouse (nontransferor spouse),
ulatory assessment is not required. It has cussed and the time to be devoted to each then the stock redeemed shall be deemed
also been determined that section 553(b) topic (preferably a signed original and first to be transferred by the transferor
of the Administrative Procedure Act (5 eight (8) copies) by November 23, 2001. spouse to the nontransferor spouse and
U.S.C. chapter 5) does not apply to these A period of 10 minutes will be allotted then to be transferred by the nontransferor
regulations, and because the regulations to each person for making comments. spouse to the redeeming corporation. Any
do not impose a collection of information An agenda showing the scheduling of property actually received by the transfer-
on small entities, a Regulatory Flexibility the speakers will be prepared after the or spouse from the redeeming corporation
Analysis is not required. Pursuant to sec- deadline for receiving outlines has passed. in respect of the redeemed stock shall be
tion 7805(f) of the Internal Revenue Copies of the agenda will be available free deemed first to be transferred by the
Code, this notice of proposed rulemaking of charge at the hearing. redeeming corporation to the nontransfer-
will be submitted to the Chief Counsel or spouse in exchange for the redeemed
for Advocacy of the Small Business Drafting Information stock and then to be transferred by the
Administration for comment on its impact nontransferor spouse to the transferor
on small business. The principal author of these regula-
tions is Edward C. Schwartz of the Office spouse.
Comments and Public Hearing of the Associate Chief Counsel (Income (2) Redemptions of stock not resulting
Tax and Accounting). However, other in constructive distributions. Notwith-
Before these proposed regulations are personnel from the IRS and Treasury standing Q&A-9 of § 1.1041–1T(c), if a
adopted as final regulations, consideration Department participated in their develop- corporation redeems stock owned by the
will be given to any written comments (a ment. transferor spouse, and the transferor
signed original and eight (8) copies) and * * * * * spouse’s receipt of property in respect of
electronic comments that are submitted such redeemed stock is not treated, under
timely to the IRS. The IRS is also inter- Proposed Amendments to the applicable tax law, as resulting in a con-
ested in receiving comments regarding the Regulations structive distribution to the nontransferor
proper treatment of transfers of property spouse, then the form of the stock re-
to third parties by a spouse or former Accordingly, 26 CFR part 1 is proposed demption shall be respected for Federal
spouse other than transfers under these to be amended as follows: income tax purposes. Therefore, the
proposed regulations that solely govern PART 1—INCOME TAXES transferor spouse and the redeeming cor-
certain redemptions of stock owned by a poration will be respected as engaging in
spouse or former spouse. Further, com- Paragraph 1. The authority citation for a redemption transaction to which the
ments are specifically requested concern- part 1 continues to read in part as follows: nontransferor spouse is not a party.
ing the effective date provisions in the Authority: 26 U.S.C. 7805 * * * (b) Tax consequences — (1) Transfers
proposed regulations. All comments will Par. 2. In § 1.1041–1T, paragraph (c) is described in paragraph (a)(1). The tax
be available for public inspection and amended by adding a sentence at the end consequences of each deemed transfer
copying. of A-9 to read as follows: described in paragraph (a)(1) of this sec-
A public hearing has been scheduled for tion are determined under applicable pro-
December 14, 2001, at 10:00 a.m. in the § 1.1041–1T Treatment of transfers of visions of the Internal Revenue Code as if
Auditorium, Internal Revenue Building, property between spouses or incident to the parties had actually made such trans-
1111 Constitution Avenue, NW, Washing- divorce (temporary). fers. Accordingly, section 1041 applies to
ton, DC. Due to building security proce- ***** any deemed transfer of the stock and
dures, visitors must enter at the 10th Street (c) * * * redemption proceeds between the trans-
entrance, located between Constitution A-9: * * * This A-9 shall not apply to feror spouse and the nontransferor spouse,
and Pennsylvania Avenues, NW. In addi- transfers to which § 1.1041–2 applies. provided the requirements of section 1041
tion, all visitors must present photo identi- ***** are otherwise satisfied with respect to
fication to enter the building. Because of Par. 3. Section 1.1041–2 is added to such deemed transfer. Section 1041, how-
access restrictions, visitors will not be ad- read as follows: ever, will not apply to any deemed trans-
mitted beyond the immediate entrance fer of stock by the nontransferor spouse to
area more than 15 minutes before the § 1.1041–2 Certain redemptions of stock. the redeeming corporation in exchange
hearing starts. For information about hav- for the redemption proceeds. See section
ing your name placed on the building ac- (a) In general — (1) Redemptions of 302 for rules relating to the tax conse-
cess list to attend the hearing, see the stock resulting in constructive distribu- quences of certain corporate redemptions.
“FOR FURTHER INFORMATION CON- tions. Notwithstanding Q&A-9 of (2) Transfers described in paragraph
TACT” section of this preamble. § 1.1041–1T(c), if a corporation redeems (a)(2). Section 1041 will not apply to any
stock owned by a spouse or former spouse

2001–43 I.R.B. 373 October 22, 2001
of the transfers described in paragraph Example 2. Assume the same facts as Example 1, that satisfies the requirements of para-
(a)(2) of this section. See section 302 for except that the divorce instrument requires A to sell graph (c) of this section with respect to
A’s shares to Corporation X in exchange for a note.
rules relating to the tax consequences of B guarantees Corporation X’s payment of the note.
such redemption.
certain stock redemptions. Assume that, under applicable tax law, B does not
(c) Special rule. Notwithstanding have a primary and unconditional obligation to pur-
Robert E. Wenzel,
applicable tax law, a transferor spouse’s chase A’s stock. Also assume that the special rule of Deputy Commissioner
receipt of property in respect of redeemed paragraph (c) of this section does not apply to the of Internal Revenue.
transfer of stock and redemption proceeds in con-
stock will be treated as resulting in a con- nection with the redemption transaction. Under (Filed by the Office of the Federal Register on Au-
structive distribution to the nontransferor applicable tax law, the stock redemption does not gust 2, 2001, 8:45 a.m., and published in the issue of
spouse for purposes of paragraph (a)(1) of result in a constructive distribution to B, because B the Federal Register for August 3, 2001, 66 F.R.
this section if a divorce or separation does not have a primary and unconditional obliga- 40659)
instrument, or a written agreement tion to purchase A’s stock. Paragraph (a)(1) of this
section does not apply to the transfers of stock and
between the transferor spouse and the redemption proceeds in connection with the redemp-
nontransferor spouse, requires the trans- tion transaction. Accordingly, under paragraphs Disaster Relief for Issuers of
feror spouse and the nontransferor spouse (a)(2) and (b)(2) of this section, the tax conse- Tax-Exempt Bonds Affected by
to file their Federal income tax returns in quences of the redemption will be determined in the September 11, 2001,
a manner that reflects that the transferor accordance with its form as a redemption of A’s
shares by Corporation X. See section 302.
Terrorist Attack
spouse transferred the redeemed stock to Example 3. Assume the same facts as Example 2,
the nontransferor spouse in exchange for except that the divorce instrument provides as fol- Announcement 2001–101
the redemption proceeds and the corpora- lows: “A and B agree that A’s Federal income tax
tion redeemed the stock from the non- return for the year that includes the date of the PURPOSE
transferor spouse in exchange for the redemption will reflect that A transferred A’s shares
of Corporation X to B in exchange for the redemp- The purpose of this announcement is to
redemption proceeds. Such divorce or tion proceeds of $100x and B’s Federal income tax inform issuers of tax-exempt bonds that,
separation instrument must be effective, return for such year will reflect that Corporation X effective immediately, the Internal
or written agreement must be executed by redeemed such shares from B in exchange for such Revenue Service will put into effect pro-
both spouses or former spouses, prior to proceeds.” By virtue of the special rule of paragraph
cedures to provide relief to issuers affect-
the date on which the nontransferor (c) of this section, the redemption is treated as result-
ing in a constructive distribution to B. Accordingly, ed by the September 11, 2001, Terrorist
spouse files such spouse’s first timely A will be treated as transferring A’s stock of Attack.
filed Federal income tax return for the Corporation X to B in a transfer to which section
year that includes the date of the stock 1041 applies (assuming the requirements of section BACKGROUND
redemption, but no later than the date such 1041 are otherwise satisfied). B will be treated as
transferring the Corporation X stock B is deemed to In connection with the September 11,
return is due (including extensions).
have received from A to Corporation X in exchange 2001, Terrorist Attack, the President
(d) Limited scope. Paragraphs (a) and for $100x in an exchange to which section 1041 does issued federal disaster declarations with
(c) of this section shall apply only to stock not apply and sections 302(d) and 301 apply, and B
respect to certain counties and may issue
redemptions where, either immediately will be treated as transferring the $100x to A in a
transfer to which section 1041 applies. additional declarations with respect to
before or immediately after the stock
(f) Effective date. Except as otherwise other counties (such counties are collec-
redemption, the nontransferor spouse
provided in this paragraph, this section is tively referred to herein as, the “covered
owns directly stock of the redeeming cor-
applicable to redemptions of stock on or counties”).
poration.
after the date these regulations are pub- As a consequence of the September 11,
(e) Examples. The provisions of this
lished as final regulations in the Federal 2001, Terrorist Attack, an affected issuer
section may be illustrated by the follow-
Register, except for redemptions of stock (as defined below), may not be able to
ing examples:
Example 1. Corporation X has 100 shares out- that are pursuant to instruments in effect comply with certain requirements of sec-
standing. A and B each own 50 shares. A and B before the date these regulations are pub- tion 103 and related provisions of the
divorce. The divorce instrument requires B to pur-
lished as final regulations in the Federal Internal Revenue Code, including, but not
chase A’s shares, and A to sell A’s shares to B, in limited to, the requirements set forth in
exchange for $100x. Corporation X redeems A’s Register. For redemptions of stock
before the date these regulations are pub- sections 148(f) and 149(e) of the Code,
shares for $100x. Assume that, under applicable tax
law, the stock redemption results in a constructive lished as final regulations in the Federal with respect to certain of its bond issues.
distribution to B. Paragraph (a)(1) of this section Register and redemptions of stock that
applies to the transfers of stock and redemption pro- PROCEDURES FOR REQUESTING
are pursuant to instruments in effect RELIEF
ceeds in connection with the redemption transaction.
Accordingly, A will be treated as transferring A’s before the date these regulations are pub-
stock of Corporation X to B in a transfer to which lished as final regulations in the Federal (a) An affected issuer is an issuer that
section 1041 applies (assuming the requirements of Register, see § 1.1041–1T(c), A-9. meets one or more of the following:
section 1041 are otherwise satisfied). B will be However, these regulations will be applic- (i) It is located in one of the cov-
treated as transferring the Corporation X stock B is
able to redemptions described in the pre- ered counties;
deemed to have received from A to Corporation X in
exchange for $100x in an exchange to which section ceding sentence of this paragraph (f) if the (ii) It is not located in any of the
1041 does not apply and sections 302(d) and 301 spouses or former spouses execute a writ- covered counties, but its
apply, and B will be treated as transferring the $100x ten agreement on or after August 3, 2001, records necessary to meet a fil-
to A in a transfer to which section 1041 applies.

October 22, 2001 374 2001–43 I.R.B.
ing or paying deadline for the also be granted under appropriate cir- tributions for a plan year made by an
issue are maintained in one of cumstances for affected issuers (for employer by the end of the 8 1/2 month
the covered counties; example, affected issuers unable to period following the end of such plan
(iii) The facilities financed with the redeem their current refunded issue year are deemed to have been made on
proceeds of the issue are lo- within 90 days of issuance of the current the last day of the plan year.
cated in one of the covered refunding issue). An affected issuer may Section 6058 of the Code and § 104 of
counties; request relief by contacting the Tax ERISA require plan administrators to
(iv) The conduit borrower for the Exempt Bonds, Outreach, Planning and file an annual return/report of employee
issue is located in one of the Review (“TEB OPR”) function of Tax benefit plan within a specified period of
covered counties; Exempt/Government Entities at (202) time after the end of the plan year. The
(v) The counsel to the issuer or the 283-9798, contact person: Cliff Gannett. annual return/report of employee benefit
conduit borrower, or bond plan is Form 5500 and Form 5500–EZ
counsel for the issue, is located DRAFTING INFORMATION (hereinafter Form 5500). For defined
in one of the covered counties; The principal author of this announce- benefit pension plans subject to the min-
(vi) The professional on whom the ment is Sunita Lough of Tax Exempt imum funding standard, § 6059 of the
issuer relies for compliance Bonds Outreach, Planning and Review of Code requires that a periodic report of
with the relevant provision of the Office of the Director, Tax Exempt the actuary be filed with the annual
the Code is located in one of the Bonds, Tax Exempt/Government Entities. return. Under § 301.6059–1 of the
covered counties. For example, For further information regarding this an- Procedure and Administration Regula-
the issuer may need to rely on nouncement or comments as to how addi- tions, the periodic report is the Schedule
one or more of the following tional relief may be provided to affected B, which must be signed by an enrolled
persons in order to comply with issuers, contact Sunita Lough at (202) actuary. In order to properly complete
the rebate requirement of sec- 283-9774 (not a toll-free call). the Schedule B, the enrolled actuary
tion 148(f): the bond trustee, a must know whether a contribution for a
financial advisor or a rebate plan year was made within the period
consultant. specified by § 412(c)(10) of the Code
Filing of Certain Forms 5500
(b) With respect to the requirements and § 302(c)(10) of ERISA.
under sections 149(e) and 148(f), an Announcement 2001–103 Under section 502(c)(2) of ERISA, a
affected issuer has an additional 6 months penalty of up to $1,100 a day may be
plus 120 days to file Form 8038, Form The Internal Revenue Service (IRS), assessed for each day a plan administra-
8038-G, Form 8038-GC, or Form 8038-T the Department of Labor’s Pension and tor fails or refuses to file a complete and
for an issue for which such form is other- Welfare Benefits Administration accurate annual report and accompany-
wise required to be filed in accordance (PWBA), and the Pension Benefit ing schedules. Similarly, § 6652(e) of
with an original due date that occurs on or Guaranty Corporation (PBGC) provide the Code imposes a penalty of $25 a day
after September 11, 2001, and on or relief from certain penalties relating to (up to $15,000) for not filing returns for
before November 30, 2001. In the case of Forms 5500 for defined benefit and certain deferred compensation plans.
a Form 8038-T, the Service will not money purchase pension plans that are Section 6692 of the Code imposes a
impose a penalty, including any interest required to be filed on or before October penalty of $1,000 for not filing an actu-
portion thereof, under section 148 of the 15, 2001. This announcement also arial report described in § 6059. Under
Code, on rebate payments, yield reduction includes PBGC’s statement of relief § 301.6692–1(a) of the regulations, a
payments and penalties in lieu of rebate from penalties relating to premiums, failure to provide a material item of
that are originally due on or after reporting and disclosure, and certifica- information is considered as a failure to
September 11, 2001, and on or before tions. file an actuarial report.
November 30, 2001, provided such pay- Because of the disruption of the finan-
Background
ments are made within 6 months and 120 cial markets caused by the events of
days of the original due date of the pay- Section 412(a) of the Internal September 11, 2001, many employers
ment. For computation purposes, such Revenue Code (Code) and § 302(a) of have stated they were not able to make
payments will be treated as paid on the the Employee Retirement Income required contributions to their pension
last day of the computation or spending Security Act of 1974 (ERISA) provide plans on or before September 15, 2001,
period to which they relate. that a plan meets the minimum funding to satisfy the minimum funding stan-
(c) When filing a form described in standards of the Code and ERISA for a dards.
subsection (b) above, the affected issuer plan year if the plan does not have an
Grant of Relief
should add the following designation in accumulated funding deficiency as of
red ink at the top of the form, the end of the plan year. Section The IRS, the PWBA, and the PBGC
“September 11, 2001 – Terrorist Attack, 412(c)(10) of the Code and § 302(c)(10) provide the following relief. In the case
See Announcement 2001–101.” of ERISA provide that, for purposes of of a defined benefit or money purchase
(d) In addition to the relief granted in satisfying the minimum funding require- pension plan with a plan year ending on
subsection (b) above, other relief may ments of the Code and ERISA, any con- or after December 27, 2000, and on or

2001–43 I.R.B. 375 October 22, 2001
before January 8, 2001, for which a Form GUST1 opinion letters by December 31, Foundations Status of Certain
5500 is required to be filed on or before 2000. Recently, the Service completed Organizations
October 15, 2001, plan administrators revisions to pertinent sections of the List-
and plan sponsors will not be treated as ing of Required Modifications and Infor- Announcement 2001–105
failing to file a complete and accurate mation Package (LRM) for both defined The following organizations have
return/report under § 6058 of the Code or contribution and defined benefit plans. failed to establish or have been unable to
§ 104 of ERISA, nor will enrolled actu- The revisions to the LRMs are posted to maintain their status as public charities
aries be treated as failing to file an actu- the Employee Plans Internet address at or as operating foundations. Accord-
arial report that satisfies the requirements www.irs.gov/ep. ingly, grantors and contributors may not,
of § 6059(b) of the Code, solely because Generally, an employer who, by the end after this date, rely on previous rulings
contributions made on or before of the 2001 plan year (December 31, 2001, or designations in the Cumulative List of
September 24, 2001, are included on line for calendar-year plans), either adopts or Organizations (Publication 78), or on
3 of Schedule B of Form 5500 (showing certifies its intent to adopt a timely submit- the presumption arising from the filing
the actual date of payment of the contri- ted M&P plan or volume submitter speci- of notices under section 508(b) of the
bution) and line 6(b) of Schedule R of men plan will have until the later of De- Code. This listing does not indicate that
Form 5500. cember 31, 2002, or 12 months after the the organizations have lost their status
In addition, the PBGC provides the date of the last opinion or advisory letter is- as organizations described in section
following relief with respect to any plan sued to the M&P plan sponsor or volume 501(c)(3), eligible to receive deductible
with a plan year ending on or after submitter practitioner to adopt the GUST- contributions.
December 27, 2000, and on or before approved plan. An M&P plan or volume Former Public Charities. The follow-
January 8, 2001. The PBGC will not submitter specimen plan is timely submit- ing organizations (which have been
assess any penalties for a failure to pay ted if an application for a GUST opinion or treated as organizations that are not pri-
PBGC premiums in a timely manner or a advisory letter for the plan was filed by De- vate foundations described in section
failure to meet a PBGC reporting or dis- cember 31, 2000. An employer who does 509(a) of the Code) are now classified as
closure requirement, nor will it treat a not so adopt or certify its intent to adopt a private foundations:
certification as failing to be a valid and timely submitted M&P plan or volume sub-
correct certification, solely because con- mitter specimen plan must amend its plan 4T Ministry, Inc., San Jose, CA
tributions made on or before September for GUST by the end of the 2001 plan year. 75 Lyerly Residents Council,
24, 2001, are included in the plan’s assets As provided in Announcement 2001–77 Incorporated, Houston, TX
for purposes of PBGC premiums or are (2001–30 I.R.B. 83), the Service will soon Abundant Rain, Inc., Amarillo, TX
counted for purposes of determining publish on the IRS Web-page a list of the African Business Group ABG,
whether any PBGC reporting or disclo- M&P plans and volume submitter speci- Dallas, TX
sure requirement applies. men plans that were timely submitted for A.H.S. Enterprises, Inc., Houston, TX
GUST opinion and advisory letters. This Akido of Santa Barbara, Santa Barbara, CA
Drafting Information All Star Kids Day Care, Houston, TX
list will be updated periodically to indicate
The principal author of this announce- the dates on which letters were issued or the Alumni Association of Brooks Institute,
ment is James E. Holland, Jr. of the applications were withdrawn. The Service Santa Barbara, CA
Employee Plans, Tax Exempt and Gov- expects to complete the issuance of GUST American Indian Cultural & Business
ernment Entities Division. For further opinion and advisory letters in the first Council-AICBC, Dallas, TX
information regarding this announcement, quarter of calendar year 2002. Ancient Eyes Foundation, Oxnard, CA
please contact the Employee Plans’ tax- More information about GUST dead- Antelope Valley Youth Football
payer assistance telephone service at lines and filing procedures can be found in Association, Bakersfield, CA
1-877-829-5500, between the hours of the following IRS procedures: Rev. Proc. Apostolate for Catholic Truth and
8:00 a.m. and 9:30 p.m. Eastern Time, 2000–20 (2000–6 I.R.B. 553), Rev. Proc. Service, Fresno, CA
Monday through Friday (toll-free num- 2000–27 (2000–26 I.R.B. 1272), Rev. Applied Geography Conferences, Inc.,
ber). Mr. Holland may be reached at Proc. 2001–6 (2001–1 I.R.B. 194), and Denton, TX
(202) 283-9699 (not a toll-free number). Notice 2001–42 (2001–30 I.R.B. 70). Asian-American Association Clothing the
Needy, Stockton, CA
1 The term “GUST” refers to: Asthma Watch Advocates Reinforcing
Issuance of GUST Opinion • The Uruguay Round Agreements Act, Pub. L. 103- and Educating Aware, Lancaster, TX
465; Athens-Henderson County
Letters for Master and • The Uniformed Service Employment and Reem- Crimestoppers, Malakoff, TX
Prototype Plans ployment Rights Act of 1994, Pub. L. 103-353;
Beaumont Federation of Neighborhood
• The Small Business Job Protection Act of 1996,
Announcement 2001–104 Pub. L.104-188; Associations, Beaumont, TX
• The Taxpayer Relief Act of 1997, Pub. L.105-34; Believers Bible Fellowship, Inc.,
The Service has begun to issue opinion • The Internal Revenue Service Restructuring and Missoula, MT
letters to sponsors of master and proto- Reform Act of 1998, Pub. L.105-206; and Bellerive Residents Council,
type (M&P) plans who applied for • The Community Renewal Tax Relief Act of 2000,
Incorporated, Houston, TX
Pub. L.106-554 (“CRA”).

October 22, 2001 376 2001–43 I.R.B.
Benbrook Firefighters Association, Inc., Court Appointed Special Advocates of Hazel-Lisa-McMurran Foundation,
Benbrook, TX Angelina County, Inc., Lufkin, TX Lake Arrowhead, CA
Bi Stone Economic Strategy Team, Inc., Cup of Water International Ministries, Health and Environment International,
Teague, TX Inc., Bay City, TX Los Altos, CA
Big Horn River Guide Company, Inc., Dallas Hispanic Criminal Justice Health Education Alliance Foundation,
Billings, MT Association, Dallas, TX Great Falls, MT
Big Sky Gymnastic Booster Club, Dan McPherson Memorial Foundation, Henderson County Arts Council,
Great Falls, MT Lubbock, TX Athens, TX
Brain Games USA, Duncanville, TX DARE Montana, Helena, MT Hispanic Festival, Inc., Florissant, MO
Brothers of West Liberty Foundation, Deaf Educational Access Foundation, Hope Restoration, Inc., Dallas, TX
Inc., Liberty, TX Palo Alto, CA Houston Council on Sexual Dependency
Brownwood Area Habitat for Humanity, Down Syndrome Partnership of Tarrant Recovery, Houston, TX
Inc., Brownwood, TX County, Inc., Fort Worth, TX Humble Beginnings Emergency
Buenaventura Theatre Group, Dr. Thomas S. Mackey Educational Trust, Assistance Center, Humble, TX
Ventura, CA Galveston, TX Idaho Trauma System Development
California Broadcasters Foundation, Drum Not Guns, Inc., Dallas, TX Coalition, Boise, ID
Sacramento, CA Eagle Fest, Emory, TX In Depth Ministries, Inc., Houston, TX
California Industrial Safety Council, Inc., Elks Park Scholarship and Charity Fund, Indian Culture Center-Spring, Spring, TX
Bakersfield, CA Merced, CA Indico Foundation, Fort Worth, TX
Canyon Community Center, Inc., Emmaus House, Hollister, CA Instititute for Comprehensive
Hungry Horse, MT Encouragement Ministries, Inc., Understanding, Sunnyvale, CA
Carmel Literacy Arts Society, Morgan Hills, CA Irving Together, Inc., Irving, TX
Carmel, CA Envirohome, Santa Cruz, CA Jerusalem Ministries, Inc., Houston, TX
Carmel Valley Trail & Saddle Club Equadorables, San Jose, CA Jim Caruthers Ministries, Inc., Justin, TX
Community Foundation, Inc., Extended Hope Youth Program, J.R. Richard Foundation for the
Salinas, CA Lancaster, TX Homeless, Dallas, TX
Carpinteria Creek Foundation, Fillmore FFA Booster Club, Jungle Gym Daycare, Inc., Culbertson, MT
Carpinteria, CA Fillmore, CA Kalispell Dramatic Arts Company, Inc.,
Cedar Gardens Tenant Association, Firstplus Employees Foundation, Kalispell, MT
Fresno, CA Dallas, TX Kerman Bible Studies, Fresno, CA
Center for Attitudinal Healing Dallas, Fish Camp Fire Volunteers Auxiliary, Kerman Unified Education Foundation,
Inc., Dallas, TX Fish Camp, CA Kerman, CA
Center for Hope, Inc., Tacoma, WA Fort Worth Beat the Heat Racing, Kern County Royals Baseball Club,
Center for Internet Mail Education and Fort Worth, TX Bakersfield, CA
Research, Santa Cruz, CA Foundation for the Development of Kern Musicians Association,
Chances, Inc., Terrell, TX Critical Thought, Inc., Arlington, TX Bakersfield, CA
Charles Tolbert Ministries, Inc., Foundation for the Missions of Kindness Foundation, Dallas, TX
Midland, TX Coromoto, Salinas, CA Kingdom Stewardship Ministries, Inc.,
Chestnut Corporation, Bellaire, TX Four Corners Community Outreach, Inc., Lewisville, TX
Child Support Investigations, Inc., Richmond, TX Kings Highway Ministries, Incorporated,
Santa Ana, CA Friends of the Rink, Inc., Butte, MT Fresno, CA
Childrens Advocacy Network, Friends of the Shelter Tobacco Valley Knights of Care, Dallas, TX
Mammoth Lakes, CA Animal Shelter, Inc., Eureka, MT Lancelot Bell Foundation, Los Gatos, CA
Childrens Special Moments, Inc., Geriatric Assessment Plans, Inc., Laurell Akers Ministries, Inc.,
Conroe, TX Irving, TX Tomball, TX
Chinese Physical Culture Plus, Inc., Glacier Affordable Housing Foundation, Lighthouse Redemption Center,
Houston, TX Kalispell, MT Camarillo, CA
Coastline Organization of People with Golden State Human Service Continuum, Lisa L. Netsch Foundation,
Aids-HIV, La Marque, TX Inc., New Haven, CT Highland Vill, TX
Connie M. Pate Memorial Scholarship Golden State Track Club, San Jose, CA Livingston Area Cultural Arts and
Fund, Beaumont, TX Great Race Automotive Hall of Fame, Activities Center, Inc., Livingston, MT
Core Performance Manufactory, Inc., Granbury, TX Love Foundation, Houston, TX
Dallas, TX Greater Fairfield Restoration Association, McCampbell Institute, Monterey, CA
Corner Boxing Club, Inc., Arlington, TX Inc., Fairfield, TX Midlothian Amateur Baseball
Corpus Christi Club Estates Swim Team Hagerman Quick Response Unit, Inc., Association, Inc., Midlothian, TX
Parents Club, Corpus Christi, TX Hagerman, ID Ministerio Vida Y Luz, Odessa, TX
Corvallis Quick Response Unit, Hall of Fame of Golf, Inc., Miracle Healing Ministry,
Corvallis, MT The Woodlands, TX Stevensville, MT

2001–43 I.R.B. 377 October 22, 2001
Montana County Fire Wardens Philippians 413 Ministries, S.Y. Larrick Memorial Library
Association, Stanford, MT Missoulas, MT Foundation, Whitefish, MT
Montana Mens Foundation, Phoenix Data Center of Santa Clara TCC Alumni Association, Conroe, TX
Bozeman, MT County, Inc., Los Gatos, CA Team Aztecas Sports, Dallas, TX
Montana River Action Network Fund, Proclaim Ministries, Plano, TX Teen Court of Hopkins County,
Inc., Bozeman, MT Professional Football Referees Sulphur Springs, TX
Montana Tribal Business Information Association Charities, Plano, TX Tegloma Texas Chapter, Incorporated,
Network, Incorporated, Billings, MT Progressive Economic Opportunity Houston, TX
Monterey County Appointed Special Programs for Local Efforts, Inc., Total Care Living Center, Houston, TX
Advocate Association, Monterey, CA Wichita Falls, TX Transplants Are Us, Missoula, MT
Monterey Peninsula-Nanao Friendship Prop Foundation, Inc., Missoula, MT Ulysses-Cora Cephas House of San
Association, Marina, CA PTA California Congress of Parents Marcos Texas, Dallas, TX
Montessori Phoenix Projects, Inc., Teachers and Students, Inc., Unified Charities of Texas, Inc.,
Gaviota, CA Morgan Hill, CA Austin, TX
Nash Country School, Inc., Red River Emmaus Community, United Kids Charity Group, Inc.,
Toluca Lake, CA Incorporated, Wichita Falls, TX Incline Village, NV
National Association of Presidential Rotarun Ski Club, Inc., Hailey, ID Vessels for Jesus Prison Missions, Inc.,
Assistants in Higher, Washington, DC Rural Community Health Centers, Midlothian, TX
National Disaster Search Dog Lemoore, CA Vietnam Helicopter Pilots Association,
Foundation, Inc., Ojai, CA San Angelo Business-Education Mineral Wells, TX
Network Ministries Fellowship, Inc., Coalition, Inc., San Angelo, TX Vineyard Press, Kalispell, MT
Arlington, TX San Benito County Athletic Foundation, West Houston Community Center, Inc.,
New Creation Ministry, Inc., Hollister, CA Houston, TX
Nacogdoches, TX Sandon Bailey Foundation, Coppell, TX Westside Food Pantry, Patterson, CA
New Creations Recovery, Inc., Santa Barbara Air Fair, Inc., Goleta, CA Wildwood Center for Walking, Inc.,
Porterville, CA Santa Barbara Sister Cities Association- Saint Paul, MN
North Grassland Wildlife Foundation, Yalta, Santa Barbara, CA Wishing on the Lone Star, Inc.,
Newman, CA Say No To Drugs, Dallas, TX Mesquite, TX
North Richland Hill Citizens Police Seawind, Inc., Seaside, CA Wit Foundation for Artists, Dallas, TX
Academy Alumni Association, Segeh Gospel Mission, Inc., Women Against Sexual Harassment,
N. Richland Hills, TX San Jose, CA Irving, TX
North Texas Housing & Management Sensible Solutions the Institute, Inc., Womens Resource Video Library,
Corp., Plano, TX Missoula, MT Somers, MT
North Texas Select Softball, Services for the Medically Youth Education Systems, Inc.,
Southlake, TX Disadvantaged, Fort Worth, TX Sand City, CA
Northern Santa Barbara County Athletic Sexual Abuse Intervention Network of Youth Net Ministries, Inc.,
Roundtable, Inc., Santa Maria, CA Dallas, Inc., Dallas, TX Lake Jackson, TX
Northwest Pharmacist Recovery Shields Valley Foundation, Inc.,
Network, Fircrest, WA Clyde Park, MT If an organization listed above sub-
Oleander & Sunset Park Association, Sierra Scholarship Foundation, Inc., mits information that warrants the re-
Bakersfield, CA Bishop, CA newal of its classification as a public
One Church One Child of North-North Somers Volunteer Firefighters charity or as a private operating founda-
Central Texas and Surrounding, Association, Inc., Somers, NY tion, the Internal Revenue Service will
Arlington, TX South Texas Prison Outreach, Inc., issue a ruling or determination letter
One Foundation Ministries, Inc., Bay City, TX with the revised classification as to
Dallas, TX Special Family Ministries, Irving, TX foundation status. Grantors and contrib-
Opera San Joaquin, Fresno, CA Special Pets Incorporated, Dallas, TX utors may thereafter rely upon such rul-
Others, Inc., Waxahachie, TX Spruce Island Foundation, ing or determination letter as provided
Out of the Madness Charity, Inc., Sunnyvale, CA in section 1.509(a)–7 of the Income Tax
Dallas, TX Storm Shelter Counseling for the Fissures Regulations. It is not the practice of the
Pacific Grove Feast of Lanterns, Inc., of Men of Ventura County, Service to announce such revised classi-
Pacific Grove, CA Ventura, CA fication of foundation status in the Inter-
Palo Pinto County A&M Club, Structural Engineers World Congress, nal Revenue Bulletin.
Mineral Wells, TX Los Altos, CA
Paso Robles Police Activities League, Stump Enrichment Ministry for Church
Paso Robles, CA & Family, Dallas, TX
Pearl Longbines Cottage for Children, Summitt Place, Inc., Butte, MT
Inc., Amarillo, TX Sun & Star 1996, Dallas, TX

October 22, 2001 378 2001–43 I.R.B.
Definition of Terms
Revenue rulings and revenue procedures plies to both A and B, the prior ruling is new ruling does more than restate the
(hereinafter referred to as “rulings”) modified because it corrects a published substance of a prior ruling, a combination
that have an effect on previous rulings position. (Compare with amplified and of terms is used. For example, modified
use the following defined terms to de- clarified, above). and superseded describes a situation
scribe the effect: Obsoleted describes a previously pub- where the substance of a previously pub-
Amplified describes a situation where lished ruling that is not considered deter- lished ruling is being changed in part and
no change is being made in a prior pub- minative with respect to future transac- is continued without change in part and it
lished position, but the prior position is tions. This term is most commonly used is desired to restate the valid portion of
being extended to apply to a variation of in a ruling that lists previously published the previously published ruling in a new
the fact situation set forth therein. Thus, rulings that are obsoleted because of ruling that is self contained. In this case
if an earlier ruling held that a principle changes in law or regulations. A ruling the previously published ruling is first
applied to A, and the new ruling holds may also be obsoleted because the sub- modified and then, as modified, is super-
that the same principle also applies to B, stance has been included in regulations seded.
the earlier ruling is amplified. (Compare subsequently adopted. Supplemented is used in situations in
with modified, below). Revoked describes situations where the which a list, such as a list of the names of
Clarified is used in those instances position in the previously published rul- countries, is published in a ruling and
where the language in a prior ruling is ing is not correct and the correct position that list is expanded by adding further
being made clear because the language is being stated in the new ruling. names in subsequent rulings. After the
has caused, or may cause, some confu- Superseded describes a situation where original ruling has been supplemented
sion. It is not used where a position in a the new ruling does nothing more than several times, a new ruling may be pub-
prior ruling is being changed. restate the substance and situation of a lished that includes the list in the original
Distinguished describes a situation previously published ruling (or rulings). ruling and the additions, and supersedes
where a ruling mentions a previously Thus, the term is used to republish under all prior rulings in the series.
published ruling and points out an essen- the 1986 Code and regulations the same Suspended is used in rare situations to
tial difference between them. position published under the 1939 Code show that the previous published rulings
Modified is used where the substance and regulations. The term is also used will not be applied pending some future
of a previously published position is when it is desired to republish in a single action such as the issuance of new or
being changed. Thus, if a prior ruling ruling a series of situations, names, etc., amended regulations, the outcome of
held that a principle applied to A but not that were previously published over a pe- cases in litigation, or the outcome of a
to B, and the new ruling holds that it ap- riod of time in separate rulings. If the Service study.

Abbreviations E.O.—Executive Order.
ER—Employer.
PHC—Personal Holding Company.
PO—Possession of the U.S.
The following abbreviations in current use and for- ERISA—Employee Retirement Income Security PR—Partner.
merly used will appear in material published in the
Act. PRS—Partnership.
Bulletin.
EX—Executor. PTE—Prohibited Transaction Exemption.
A—Individual. F—Fiduciary. Pub. L.—Public Law.
Acq.—Acquiescence. FC—Foreign Country. REIT—Real Estate Investment Trust.
B—Individual. FICA—Federal Insurance Contributions Act. Rev. Proc.—Revenue Procedure.
BE—Beneficiary. FISC—Foreign International Sales Company.
Rev. Rul.—Revenue Ruling.
BK—Bank. FPH—Foreign Personal Holding Company.
S—Subsidiary.
B.T.A.—Board of Tax Appeals. F.R.—Federal Register.
S.P.R.—Statements of Procedural Rules.
C—Individual. FUTA—Federal Unemployment Tax Act.
Stat.—Statutes at Large.
C.B.—Cumulative Bulletin. FX—Foreign Corporation.
T—Target Corporation.
CFR—Code of Federal Regulations. G.C.M.—Chief Counsel’s Memorandum.
T.C.—Tax Court.
CI—City. GE—Grantee.
COOP—Cooperative. T.D.—Treasury Decision.
GP—General Partner.
Ct.D.—Court Decision. TFE—Transferee.
GR—Grantor.
CY—County. TFR—Transferor.
IC—Insurance Company.
D—Decedent. I.R.B.—Internal Revenue Bulletin. T.I.R.—Technical Information Release.
DC—Dummy Corporation. LE—Lessee. TP—Taxpayer.
DE—Donee. LP—Limited Partner. TR—Trust.
Del. Order—Delegation Order. LR—Lessor. TT—Trustee.
DISC—Domestic International Sales Corporation. M—Minor. U.S.C.—United States Code.
DR—Donor. Nonacq.—Nonacquiescence. X—Corporation.
E—Estate. O—Organization. Y—Corporation.
EE—Employee. P—Parent Corporation. Z—Corporation.

2001–43 I.R.B. i October 22, 2001
Numerical Finding List1 Proposed Regulations:
REG–110311–98, 2001–35 I.R.B. 204
Bulletins 2001–27 through 2001–42 REG–106917–99, 2001–27 I.R.B. 4
REG–103735–00, 2001–35 I.R.B. 204
Announcements: REG–103736–00, 2001–35 I.R.B. 204
2001–69, 2001–27 I.R.B. 23 REG–100548–01, 2001–29 I.R.B. 67
2001–70, 2001–27 I.R.B. 23 REG–106431–01, 2001–37 I.R.B. 272
2001–71, 2001–27 I.R.B. 26
Railroad Retirement Quarterly Rates:
2001–72, 2001–28 I.R.B. 39
2001–73, 2001–28 I.R.B. 40 2001–27, I.R.B. 1
2001–74, 2001–28 I.R.B. 40 2001–41, I.R.B. 314
2001–75, 2001–28 I.R.B. 42
2001–76, 2001–29 I.R.B. 67 Revenue Procedures:
2001–77, 2001–30 I.R.B. 83 2001–39, 2001–28 I.R.B. 38
2001–78, 2001–30 I.R.B. 87 2001–40, 2001–33 I.R.B. 130
2001–79, 2001–31 I.R.B. 97 2001–41, 2001–33 I.R.B. 173
2001–80, 2001–31 I.R.B. 98 2001–42, 2001–36 I.R.B. 212
2001–81, 2001–33 I.R.B. 175 2001–43, 2001–34 I.R.B. 191
2001–82, 2001–32 I.R.B. 123 2001–44, 2001–35 I.R.B. 203
2001–83, 2001–35 I.R.B. 205 2001–45, 2001–37 I.R.B. 227
2001–84, 2001–35 I.R.B. 206 2001–46, 2001–37 I.R.B. 263
2001–85, 2001–36 I.R.B. 219 2001–47, 2001–42 I.R.B. 332
2001–86, 2001–35 I.R.B. 207 2001–48, 2001–40 I.R.B. 308
2001–87, 2001–35 I.R.B. 208 2001–49, 2001–39 I.R.B. 300
2001–88, 2001–36 I.R.B. 220
2001–89, 2001–38 I.R.B. 291 Revenue Rulings:
2001–90, 2001–35 I.R.B. 208 2001–30, 2001–29 I.R.B. 46
2001–91, 2001–36 I.R.B. 221 2001–33, 2001–32 I.R.B. 118
2001–92, 2001–39 I.R.B. 301 2001–34, 2001–28 I.R.B. 31
2001–94, 2001–39 I.R.B. 303 2001–35, 2001–29 I.R.B. 59
2001–95, 2001–39 I.R.B. 303 2001–36, 2001–32 I.R.B. 119
2001–96, 2001–41 I.R.B. 317 2001–37, 2001–32 I.R.B. 100
2001–97, 2001–40 I.R.B. 310 2001–38, 2001–33 I.R.B. 124
2001–98, 2001–41 I.R.B. 317 2001–39, 2001–33 I.R.B. 125
2001–99, 2001–42 I.R.B. 340 2001–40, 2001–38 I.R.B. 276
2001–100, 2001–41 I.R.B. 317 2001–41, 2001–35 I.R.B. 193
2001–102, 2001–42 I.R.B. 340 2001–42, 2001–37 I.R.B. 223
2001–43, 2001–36 I.R.B. 209
Court Decisions: 2001–44, 2001–37 I.R.B. 223
2070, 2001–31 I.R.B. 90 2001–45, 2001–42 I.R.B. 323
2001–46, 2001–42 I.R.B. 321
Notices: 2001–47, 2001–39 I.R.B. 293
2001–39, 2001–27 I.R.B. 3 2001–48, 2001–42 I.R.B. 324
2001–41, 2001–27 I.R.B. 2 2001–49, 2001–41 I.R.B. 312
2001–42, 2001–30 I.R.B. 70
2001–43, 2001–30 I.R.B. 72 Treasury Decisions:
2001–44, 2001–30 I.R.B. 77 8947, 2001–28 I.R.B. 36
2001–45, 2001–33 I.R.B. 129 8948, 2001–28 I.R.B. 27
2001–46, 2001–32 I.R.B. 122 8949, 2001–28 I.R.B. 33
2001–47, 2001–36 I.R.B. 212 8950, 2001–28 I.R.B. 34
2001–48, 2001–33 I.R.B. 130 8951, 2001–29 I.R.B. 63
2001–49, 2001–34 I.R.B. 188 8952, 2001–29 I.R.B. 60
2001–50, 2001–34 I.R.B. 189 8953, 2001–29 I.R.B. 44
2001–51, 2001–34 I.R.B. 190 8954, 2001–29 I.R.B. 47
2001–52, 2001–35 I.R.B. 203 8955, 2001–32 I.R.B. 101
2001–53, 2001–37 I.R.B. 225 8956, 2001–32 I.R.B. 112
2001–54, 2001–37 I.R.B. 225 8957, 2001–33 I.R.B. 125
2001–55, 2001–39 I.R.B. 299 8958, 2001–34 I.R.B. 183
2001–56, 2001–38 I.R.B. 277 8959, 2001–34 I.R.B. 185
2001–57, 2001–38 I.R.B. 279 8960, 2001–34 I.R.B. 176
2001–58, 2001–39 I.R.B. 299 8961, 2001–35 I.R.B. 194
2001–59, 2001–41 I.R.B. 315 8962, 2001–35 I.R.B. 201
2001–60, 2001–40 I.R.B. 304 8963, 2001–35 I.R.B. 197
2001–61, 2001–40 I.R.B. 305 8964, 2001–42 I.R.B. 320
2001–62, 2001–40 I.R.B. 307
2001–63, 2001–40 I.R.B. 308
2001–64, 2001–41 I.R.B. 316

1 A cumulative list of all revenue rulings, revenue
procedures, Treasury decisions, etc., published in
Internal Revenue Bulletins 2001–1 through 2001–26
is in Internal Revenue Bulletin 2001–27, dated July
2, 2001.

October 22, 2001 ii 2001–43 I.R.B.
Finding List of Current Actions on Revenue Procedures—Continued: Revenue Rulings—Continued:
Previously Published Items1 84–84 78–127
Revoked by Modified by
Bulletins 2001–27 through 2001–42 Rev. Proc. 2001–49, 2001–39 I.R.B. 300 Rev. Rul. 2001–40, 2001–38 I.R.B. 276
Announcements: 93–27 78–179
2000–48 Clarified by Obsoleted by
Modified by Rev. Proc. 2001–43, 2001–34 I.R.B. 191 REG–106917–99, 2001–27 I.R.B. 4
Notice 2001–43, 2001–30 I.R.B. 72 97–13 89–42
Modified by Modified and superseded by
Notices: Rev. Proc. 2001–39, 2001–28 I.R.B. 38 Rev. Rul. 2001–48, 2001–42 I.R.B. 324
98–52 97–19 90–95
Modified by Modified by Distinguished by
Notice 2001–56, 2001–38 I.R.B. 277 Notice 2001–62, 2001–40 I.R.B. 307 Rev. Rul. 2001–42, 2001–42 I.R.B. 321
99–41 98–44 92–19
Modified and superseded by Superseded by Supplemented by
Notice 2001–62, 2001–40 I.R.B. 307 Rev. Proc. 2001–40, 2001–33 I.R.B. 130 Rev. Rul. 2001–38, 2001–33 I.R.B. 124
2001–4 99–27 97–31
Modified by Superseded by Modified and superseded by
Notice 2001–43, 2001–30 I.R.B. 72 Rev. Proc. 2001–42, 2001–36 I.R.B. 212 Rev. Rul. 2001–48, 2001–42 I.R.B. 324
2001–9 99–49
Modified by Treasury Decisions:
Modified and amplified by
Notice 2001–46, 2001–32 I.R.B. 122 Rev. Proc. 2001–46, 2001–37 I.R.B. 263 8948
2001–15 2000–20 Corrected by
Supplemented by Modified by Ann. 2001–90, 2001–35 I.R.B. 208
Notice 2001–51, 2001–34 I.R.B. 190 Notice 2001–42, 2001–30 I.R.B. 70
2001–42 2000–39
Modified by Corrected by
Notice 2001–57, 2001–38 I.R.B. 279 Ann. 2001–73, 2001–28 I.R.B. 40
Superseded by
Proposed Regulations:
Rev. Proc. 2001–47, 2001–42 I.R.B. 332
LR–97–79
2001–2
Withdrawn by
Modified by
REG–100548–01, 2001–29 I.R.B. 67
Rev. Proc. 2001–41, 2001–33 I.R.B. 173
LR–107–84
2001–6
Withdrawn by
Modified by
REG–100548–01, 2001–29 I.R.B. 67
Notice 2001–42, 2001–30 I.R.B. 70
REG–110311–98
Supplemented by Revenue Rulings:
T.D. 8961, 2001–35 I.R.B. 194
57–589
REG–106917–99 Obsoleted by
Corrected by REG–106917–99, 2001–27 I.R.B. 4
Ann. 2001–86, 2001–35 I.R.B. 207
65–316
REG–103735–00 Obsoleted by
Supplemented by REG–106917–99, 2001–27 I.R.B. 4
T.D. 8961, 2001–35 I.R.B. 194
67–274
REG–103736–00 Amplified by
Supplemented by Rev. Rul. 2001–46, 2001–42 I.R.B. 321
T.D. 8961, 2001–35 I.R.B. 194
68–125
REG–107186–00 Obsoleted by
Corrected by REG–106917–99, 2001–27 I.R.B. 4
Ann. 2001–71, 2001–27 I.R.B. 26
69–563
REG–130477–00 Obsoleted by
Supplemented by REG–106917–99, 2001–27 I.R.B. 4
Ann. 2001–82, 2001–32 I.R.B. 123
70–379
REG–130481–00 Obsoleted by
Supplemented by Rev. Rul. 2001–39, 2001–33 I.R.B. 125
Ann. 2001–82, 2001–32 I.R.B. 123
74–326
Revenue Procedures: Obsoleted by
REG–106917–99, 2001–27 I.R.B. 4
83–74
Revoked by
Rev. Proc. 2001–49, 2001–39 I.R.B. 300

1 A cumulative list of current actions on previously
published items in Internal Revenue Bulletins
2001–1 through 2001–26 is in Internal Revenue
Bulletin 2001–27, dated July 2, 2001.

2001–43 I.R.B. iii October 22, 2001
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