IRS To Address Technical Issues Surrounding Public Partnerships

by Mike Godfrey, Tax-News.com, Washington

26 September 2008

The US Internal Revenue Service (IRS) announced on Thursday that it plans to issue guidance regarding technical terminations of a publicly traded partnership (PTP) resulting in multiple short tax years within one calendar year.

Technical terminations of PTPs resulting in multiple short tax years within a calendar year can cause considerable problems for taxpayers. This issue is being worked through the Industry Issue Resolution (IIR) program, and taxpayers who follow the resulting guidance can avoid time consuming audits.

The issue that the IIR program is considering arises when more than 50% of a PTP's capital and profits interest are sold or exchanged within a 12-month period, thereby resulting in a technical termination of the partnership under section 708(b) of the Internal Revenue Code.

For the calendar year in which it occurs, a technical termination results in the PTP having two short tax years. Consequently, the PTP is required to file a Form 1065, 'US Partnership Return of Income,' for each short tax year. This requirement can cause tax problems for the partnership.

The IIR Program provides guidance to help clarify complex tax issues. Since its inception in 2000, the IIR program has resulted in resolution of many different tax issues cumulatively affecting thousands of taxpayers in many different lines of business. For each issue selected, a multi-functional team gathers and analyzes the relevant facts and recommends guidance.

The IRS reviews submissions to the IIR Program at least semi-annually, with the next review to be on submissions received by August 31, 2008.

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