Section 4. TEFRA Administrative Adjustment Request (AAR)

4.31.4 TEFRA Administrative Adjustment Request (AAR)

Manual Transmittal

Purpose

(1) This transmits revised IRM 4.31.4, Pass-Through Entity Handbook, TEFRA Administrative Adjustment Request (AAR).

Material Changes

(1) Changed Campus TEFRA Function (CTF) to Campus Pass-through Function (CPF).

(2) Section title changed to replace TEFRA Administrative Adjustment Request (AAR).

(3) IRM 4.31.4.1 - Program Scope and Objectives. New section.

(4) IRM 4.31.4.1.1 - Background. New section.

(5) IRM 4.31.4.1.2 - Authority. New section.

(6) IRM 4.31.4.1.3 - Responsibilities or Roles and Responsibilities. New section.

(7) IRM 4.31.4.1.4 - Program Management and Review. New section.

(8) IRM 4.31.4.1.5 - Program Controls. New section.

(9) IRM 4.31.4.1.6 - Terms/Definitions/Acronyms. New section.

(10) IRM 4.31.4.1.7 - Related Sources. New section.

(11) IRM 4.31.4.2 - TEFRA AAR Determinations. Paragraph (1) changed to reflect that various determinations must be made when working a TEFRA AAR. Paragraph (2), added information reflective of BBA 2015.

(12) IRM 4.31.4.2.2 - TEFRA AAR Statutes. Added TEFRA to the title to make it clear this section is for TEFRA AAR statutes and not BBA AARs.

(13) IRM 4.31.4.5.1.2 - Accept the TMP Filed AAR as Filed - CPF. Added changes to paragraph (1)(b) for clarity.

(14) IRM 4.31.4.8.2.2 - Technical Services Non-substituted Return Processing. Added changes to paragraph (1) for clarity.

(15) Various editorial changes made throughout the IRM.

Effect on Other Documents

IRM 4.31.4, Pass-Through Entity Handbook, TEFRA - Administrative Adjustment Request (AAR), dated 4-21- 2017 is superseded.

Audience

Field and campus personnel working TEFRA Administrative Adjustment Requests. LB&I plans to develop a separate IRM. Until that occurs, LB&I personnel should check with their manager to see if the particular IRM section applies or if there is other guidance to follow.

Effective Date

Daniel R. Lauer,
Acting Director, Examination - Field and Campus Policy
Small Business/Self-Employed Division (SB/SE)

Program Scope and Objectives

1. This Internal Revenue Manual (IRM) section provides guidance on campus support procedures related to examinations of partnerships subject to provisions of Tax Equity and Fiscal Responsibility Act (TEFRA).
2. Purpose : This handbook describes:

• Limits on filing an Administrative Adjustment Request (AAR);
• Selection and classification of AARs;
• Campus Pass-through Function (CPF) procedures for non-selected cases;
• CPF procedures for linked field controlled AARs;
• Feild procedures for AARs;
• TEFRA Technical Services responibilities;
• Petitioned AARs;
• Real Estate Mortgage Investment Conduit (REMIC) and AARs; and
• Erroneous refund procedures.

Background

1. TEFRA was passed in 1982 to allow examinations and statutes to be controlled at the partnership level. This eliminated the need to control each individual partner statute. It also unified the litigation process whereby the partnership files the petition rather than each individual partner. The PCS was created to establish an electronic linkage between the partnerships and their underlying partners. This helps ensure that all partners, no matter how complex the partnership structure, are sent notices and adjusted in a timely manner. PCS linkage allows the campus to work those partners so the examiner can focus on partnership examinations. PCS also allows the campus to systemically generate notices, control statutes, and gather closing information.
2. For partnerships subject to the TEFRA unified partnership audit and litigation procedures, Internal Revenue Code (IRC) 6227 establishes the ability for a Tax Matters Partner (TMP) to file an AAR to change its treatment of a partnership item reported on the partnership return to the treatment requested on the AAR. Additionally, any non-pass-through partner may file an AAR on their own behalf. It is the primary (though not exclusive) TEFRA provision on refunds or credits of overpayments attributable to partnership items. Generally, any adjustments to partnership items that will result in refunds must be raised in a Final Partnership Administrative Adjustment (FPAA) or petition to an FPAA or be forever barred. In the absence of such a proceeding, IRC 6511(g) prohibits refund claims except as provided under IRC 6227 and IRC 6230(c). Claims under IRC 6230(c) are generally limited to computational and nonpartnership items. This leaves IRC 6227 as the exclusive method for seeking refunds based on substantive changes to partnership items in the absence of a TEFRA administrative and judicial proceeding.
3. Further, IRC 6227 provides that when certain criteria are met, special streamlined procedures can be used to assess deficiencies resulting from TMP filed AARs. Generally, if the TMP files a valid election for Substituted Return Treatment under IRC 6227(c)(1) and no partner objects, the Service can assess the partners without conducting a proceeding or securing an agreement. Otherwise, deficiencies resulting from TMP filed AARs must be assessed through a TEFRA proceeding.
4. IRC 6227(c) applies to amended TEFRA key case partnership returns filed by the TMP. Commonly termed “TMP filed AARs”, these must be filed on either:

1. a Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request (AAR), or an equivalent statement with a Form 1065, U.S. Return of Partnership Income, indicating “amended return” on the page 1 checkbox or,
2. a Form 1065X, Amended Return or Administrative Adjustment Request (AAR).

The Form 8082 has been incorporated into Form 1065X. Currently, Form 1065X is only used in a paper format and is not yet available in the electronic system. Partnerships required to file electronically must continue to attach a Form 8082 or equivalent statement to the amended Form 1065 in the e-file system.

Authority

1. TEFRA policy was established in response to the partnership provisions of the Tax Equity and Fiscal Responsibility Act (TEFRA) of 1982.

Roles and Responsibilities

1. The Director, SB/SE, Examination, Headquarters, Field and Campus Policy (SE:S:E:HQ:EFCP) is responsible for:

1. Coordinating and implementing TEFRA policy changes;
2. Coordinating resolutions for TEFRA related problems; and
3. Updating this Handbook.

1. Ensuring that TEFRA procedural changes and computer program changes are implemented and coordinated with area office and campus examination personnel; and
2. Monitoring and evaluating area office and campus examination PCS quality control procedures.

1. Maintaining an updated copy of IRM 4.31, Partnership Control System (PCS) Handbook, in their respective functions;
2. Ensuring the training of technical and clerical employees in TEFRA procedures; and
3. Establishing PCS records and acting on PCS reports in a timely manner to assure an accurate PCS database.

• The other TEFRA coordinator(s)
• Their local employees
• Other campus functional areas to ensure timely processing of TEFRA related returns

• Identifying and resolving technical problems
• Identifying and coordinating the resolution of PCS systemic problems

1. Coordinate with campus and field pass-through coordinators on case processing issues;
2. Coordinate with Headquarters on any legal issues that need to be addressed by Chief Counsel;
3. Review closing packages for completeness;
4. Provide technical support to employees.

Program Management and Review

1. Program Reports : Each year a closure goal is established for the campus.
2. Program Effectiveness : The closure goal is monitored monthly to ensure the objectives are met. Since the campus does not control the number of partner returns closed each year, the closures are evaluated throughout the year and the goal is adjusted as needed.

Program Controls

1. The number of one-year assessment statute dates (OYD) are monitored to determine if the closure goal is attainable, or if it needs to be increased.

Terms/Definitions/Acronyms

1. There are several terms unique to TEFRA. Examples of these words:

Related Resources

1. The following IRM cross-references may be helpful:

1. Management of Interrelated and Related Cases: IRM 4.31, Pass-Through Entity Handbook
2. Audit Information Management System (AIMS): AIMS/Processing Handbook, IRM 4.4
3. Statute IRM 25.6.23, Examination Process-Assessment Statute of Limitations Controls.
4. TEFRA website. http://tefra.web.irs.gov/m1/1a_home.asp

TEFRA AAR Determinations

1. The following subsections outline various determinations that must be made for an AAR to ensure it is valid, and verify the type of AAR that was filed.
2. The Internal Revenue Code (IRC) references in this IRM are reflective of the TEFRA law, and not the Bipartisan Budget Act (BBA) law passed in 2015 that used the same code sections (IRC 6221 through 6248).

TEFRA Determination

1. AAR code sections and procedures are only applicable to key case partnerships subject to the unified partnership audit and litigation procedures as set forth in IRC 6221 through IRC 6234, and their taxable partners requesting adjustments from these partnerships.
2. In general, if a partnership has 10 or fewer partners, each of whom is an estate of a deceased partner, a C corporation, or a natural person who is not a non-resident alien, then the partnership will qualify as a small partnership and will not be subject to TEFRA procedures.

Note:

If a partnership has a foreign corporation as a partner, a determination must be made to verify the foreign corporation qualifies as a C corporation for the small partnership exception.

Mandatory Specialist Referral

1. Both TMP filed AARs and partner AARs controlled in the Field require a mandatory referral to the Technical Services Pass-Through/TEFRA Coordinator (TC) in Technical Services.
2. Referrals are made using the Specialist Referral System (SRS). The SRS link is https://srs.web.irs.gov/.

TEFRA AAR Statutes

1. TEFRA AARs have specific filing, assessment, petition and refund statutes. Further, AARs can have separate assessment and refund/petition statutes that are determined independently.

Filing Statute

1. IRC 6227(a) states that a partner may file an AAR at any time which is within 3 years after the later

1. The date on which the partnership return is filed, or
2. The last day for filing the partnership return (determined without regard to extensions) and
3. before the mailing to TMP of a FPAA for that tax year.

Note:

The timeframe for filing a partner AAR is generally determined with respect to the partnership return filing date regardless of whether the partner’s IRC 6501 statute is later. In this case, IRC 6501 does not extend the time for a partner to file an AAR unless the partner’s IRC 6501 has been properly extended for TEFRA partnership items and is later than the partnership’s IRC 6229 statute. In this situation, the partner must file the AAR prior to the expiration of the extended IRC 6501 statute.

Assessment Statute

1. The Service must process assessments resulting from an AAR by the partnership's IRC 6229 statute or the partner's IRC 6501 statute if later. It is the Service’s position that there is only one statute for any taxpayer and that statute is controlled under the provisions of IRC 6501. Thus, the IRC 6229 statute may extend, but never shorten, a partner’s IRC 6501 assessment statute.
2. IRC 6501(c)(7) provides that when the Service receives an AAR signed by the taxpayer showing that additional tax is owed and the assessment statute has 60 days or less remaining, the period for assessment cannot expire before 60 days after the day on which the Service receives the AAR. Local Counsel should be consulted before following assessment procedures within the 60 day period.
3. AAR related assessments may also be made through computational adjustments. If the examiner is disallowing an overassessment TMP filed AAR with an open IRC 6229 statute, the examiner should discuss with the TC the appropriateness of issuing an FPAA. By making computational adjustments, the Service can recapture any refunds already made to the partners. Otherwise, erroneous refund procedures must be considered.

TMP Filed AAR

1. The period for making TMP filed AAR related assessments (i.e., a tax increase to a partner) is generally controlled by the TEFRA partnership’s IRC 6229 statute as follows:

1. IRC 6229(a) or (b) statute when using streamlined procedures (one-year assessment date not generated) or
2. IRC 6229(d) or (f) when using a proceeding (one-year assessment date generated).

Partner filed AAR

1. For a partner level AAR, a consent to extend the IRC 6229 statute at the partner level extends the statute for a partner level AAR.
2. The examiner will need to secure a Form 872, Consent to Extend the Time to Assess Tax.

Note:

It is recommended that only closed ended statutes be used for extending the statute on a partner level AAR.

Petition or Refund Statute

1. If the Service has taken no action on an AAR (see IRC 6227(c) and IRC6227(d)), the TMP (for a TMP filed AAR) or the partner (for a partner filed AAR) must file a timely petition suit under IRC 6228 or the refund statute will expire. An AAR petition suit must be filed within the period:

• Beginning 6 months after the AAR was filed, and
• Ending two years after the AAR was filed.

• execution of agreement, or
• FPAA default, or
• court decision

See IRC 6230(c)(2)(B).

• Form 9248, Agreement to Extend the Time to File a Petition for Adjustment by the Tax Matters Partner With Respect to Partnership Items.

To extend a partner level AAR refund statute, the examiner can, prior to the expiration of the IRC 6228 statute, secure:

• Form 9247, Agreement to Extend the Time to File a Civil Action for Refund by Partner With Respect to Partner's Partnership Items.

Note:

Form 9248 and Form 9247 only extend the IRC 6228 AAR petition suit period and the time to process a refund, they do not extend the IRC 6229 assessment statute of the related partnership.

• Filing a new AAR if the time to file has not expired, or
• Requesting, prior to the expiration of the IRC 6228 , an extension on Form 9248.

• Filing a new AAR if the time to file has not expired, or
• Requesting, prior to the expiration of the IRC 6228, an extension on Form 9247.

Note:

Form 9248 and Form 9247 only extend the IRC 6228 AAR petition suit period and the time to process a refund, they do not extend the IRC 6229 assessment statute of the related partnership.

Updating the Statute on AIMS

1. The statute date of an AAR should remain as the IRC 6229 statute until a Form 872-P is secured. This is true even if the AAR is for an overassessment. What appears to be a refund AAR at the partnership level, may have a different impact on the underlying investors. It is recommended that all AAR IRC 6229(a) statutes are protected with a Form 872-P. The IRC 6228 statute can be extended as needed with Form 9248.
2. For overassessment cases where all taxpayers are definitely receiving a refund, the statute can be updated to the numeric IRC 6228 statute followed by a "R" on the key case after the original ASED expires. The IRC 6228 statute can be extended as needed with Form 9247.

Type of AAR

1. Either a partner or the TMP of a partnership can file an AAR. Different procedures must be followed depending on who filed the AAR.

Note:

TEFRA statutes only allow an AAR to be filed by the TMP of the source partnership or by a taxable partner. A middle tier partnership may file an amended return to assist the Service in passing through adjustments, but cannot file an AAR.

Partner AAR

1. Any partner may file an AAR on their own behalf (See IRC 6227(d). A partner filing an amended return for a change to a TEFRA pass-through adjustment must include a Form 8082 or a statement with substantially the same information attached to the amended tax return (Treas. Reg. 301.6227(d)-1). (Samueli v. Commissioner, 132 T.C. 336 (2009), Rigas v. United States, 486 F. App’x 491 (5th Cir. 2012), and United States v. Stewart, No. 15-20596 (5th Cir. 2016))
2. Amended returns filed by a tier partner (partnership and S corporations) reflecting only pass-through adjustments are not AARs. These should not be processed or suspended and should be returned to files. Processing a tier amended return as an AAR may result in erroneous refunds or assessments. The pass-through adjustments may be processed on those tier returns when a final determination is made on the AAR from which the adjustments originate. Those tier adjustments will be made if the key case AAR is processed.

Note:

If the amended return is filed by a nontaxable trust, contact your Technical Services Pass-Through Coordinator.

1. The request can be treated as a normal claim for nonpartnership items;
2. The Service may assess an additional tax that would result from the requested adjustments;
3. The Service can mail to the partner a notice that all partnership items of the partner for the taxable year to which it relates will be treated as nonpartnership items; or
4. The Service may conduct a partnership proceeding.

Note:

The assumption is that if the field receives this request, classification has determined that the return should be audited. The field should receive the associated source partnership return with the case file. If the field does not receive the source partnership return, the field should request it.

Partnership TMP AAR

1. Amended TEFRA key case partnership return are TMP filed AARs. A key case level AAR can only be filed by and signed by the TMP. It also must be the source of the adjustments passing through to partners. For purposes of this IRM section, the term "TMP filed AAR" does not include middle tier amended partnership returns filed by that entity’s TMP for pass-through adjustments originating from another partnership. Only the portion of the middle tier’s adjustment that originates at its own level would be considered on a TMP filed AAR.
2. Only a TMP can file an AAR on behalf of the partnership. The TMP may file either a substituted (IRC 6227(c)(1)) or non-substituted AAR (IRC 6227(c)(2)).
3. All TMP filed AARs must include revised schedules showing the affect of such request on the distributive shares of the partners and such other information as may be required under the regulations. (See IRC 6227(c)(3) and Treas. Reg. 301.6227(c)-1 for the form and manner of filing AARs.)
4. If the TMP:

1. Files a request for an AAR, and
2. asks that the treatment shown on the request be substituted for the treatment of partnership items on the partnership return to which the request relates,

the changes shown on such request may be treated as corrections of mathematical or clerical errors appearing on the partnership return.

1. without conducting any proceeding, allow or make to all partners the credits or refunds arising from the requested adjustments,
2. conduct a partnership proceeding, or
3. take no action on the request.

Note:

We may choose not to process or conduct a proceeding if the AAR is immaterial, all partners have already amended their own returns, or incorporated the adjustments in their original return. Taking no action is not considered a best practice. The decision to not take any action should be discussed with your Technical Services TEFRA/Pass-Through Coordinator. If the adjustments will result in refunds to the partners, then the Letter 4505-A may be used. See IRM 4.31.4.5.1.2.3 , Overassesment AAR Accepted - Letter 4505-A.

Substituted AAR

1. If the TMP files a request for an administrative adjustment and asks that the treatment shown on the request be substituted for the treatment of the partnership items on the partnership return to which the request relates, the Service can treat the changes shown on the request as corrections or clerical errors appearing on the partnership return (IRC 6227(c)(1)).
2. Under IRC 6227(c)(1), we can use streamline procedures to make assessments resulting from the AAR without initiating a TEFRA proceeding, if a partner subject to a deficiency does not object to the proposed correction. Partners have 60 days after the day on which a notice of this correction (Letter 3904 – AAR 60 Day Objection Letter) was mailed to the partners by the Service to request that the correction not be made (IRC 6230(b)(2)). Only a taxpayer subject to an assessment may object to the proposed correction.
3. If an objection is received from any investor, a partnership proceeding must be initiated.
4. To make a proper election for substituted return treatment under IRC 6227(c)(1), the TMP is required to file the following information when submitting an AAR:

1. Until the Form 1065X is made available electronically, partnerships required to file electronically must continue to attach a Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request (AAR), or equivalent to the amended Form 1065.
2. Partnerships filing via paper, should use Form 1065X with line F, checked "AAR" and item G, requesting substituted treatment, checked "Yes" .
3. Amended Schedules K-1 should be attached showing the corrected amounts for each partner.

Non-Substituted AAR

1. Until the Form 1065X is made available electronically, partnerships required to file electronically must continue to attach a Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request (AAR), or equivalent to the amended Form 1065 which either do not ask for substituted treatment on Form 8082 or do not include Form 8082 are considered non-substituted AAR’s.
2. Partnerships filing via paper, should use Form 1065X with item F, checked "AAR" and item G, requesting substituted treatment, checked "No" .
3. All partners affected by the non-substituted AAR must have a decrease to income that results in a refund to each investor. If an overassessment AAR is filed, substituted return procedures have not been followed and an investor is subject to a deficiency; a partnership proceeding must be initiated unless the AAR is perfected.

Note:

AAR Overassessment vs. Assessment Case

1. An AAR is considered to be an overassessment case if all partners are due a refund or credit.
2. An AAR is considered an assessment case if one or more partners will owe additional tax due to the adjustments proposed on the AAR. Materiality can be used to determine whether an assessment AAR needs to be processed.
3. Taxpayers often file AARs with reallocations in addition to requested adjustments. What appears to be a refund AAR may result in assessments to some partners due to the reallocations.

Note:

It is important to verify whether a case has reallocations and secure a Form 872-P statute extension from the TMP in order to protect the assessment statute.

Audit Potential

1. The AAR and the original return should be reviewed for audit potential.
2. If no audit potential exists, the AAR can be accepted as filed or disallowed. If the AAR is accepted as filed, no action can be taken if the partners have already filed amended returns on their own. If the partners did not file amended returns, a determination needs to be made on whether to link and adjust the partner's returns.
3. If there is audit potential and the statute allows, then a proceeding must be started on the AAR or the original return.
4. An AAR may be verified without starting a proceeding. We can ask for substantiation without conducting a TEFRA proceeding where we will not be opening a proceeding to make additional assessments.

Schedule K-1 True-up

1. The Schedule K-1 true-up issue occurs during the examination of an unlinked TEFRA investor’s return. The investor filed their return using estimates for the partnership pass-through items because they had not received their Schedule K-1 prior to filing.
2. During the examination, the investor will disclose that their return is not consistent with the Schedule K-1 filed by a related pass-through entity. The agent should verify whether the pass-through entity in question is a TEFRA entity.
3. If the disclosed Schedule K-1 discrepancy results in either an increase or decrease to tax to the investor, and if the pass-through entity is a nonTEFRA entity, the agent should make any necessary adjustments as part of the nonTEFRA examination of the investor. IRC 6501 controls the assessment statute.
4. If the pass-through entity is a TEFRA entity and the disclosed Schedule K-1 discrepancy would result in additional tax to the investor, the tax must be assessed before the IRC 6229 statute has expired on the pass-through entity unless a Form 872 is secured from the investor.
5. If the pass-through entity is a TEFRA entity and the disclosed Schedule K-1 discrepancy would result in a refund, the Service may issue a refund within the IRC 6229 period without the partner filing a claim. Alternatively, the partner may file an AAR. See IRC 6230(d)(5). To be timely, the AAR must be filed, or the refund issued, before the expiration of 3 years from the date the partnership return was filed, or within any extension of the period for assessing partnership items. The AAR should be filed using the Form 8082. If no Form 8082 is utilized, but the information required by that form is included on the claim filed, consult with the Technical Services Pass-Through Coordinator to determine if the information provided is adequate to consider it an AAR for TEFRA purposes.

Protective AARs

1. Protective AARs are often labeled as "protective claims" on the front of the amended return. Unlike normal claims, AARs have closed ended statutes for processing. The Service must make all assessments within IRC 6229 or IRC 6501 statutes and is limited to a two year period in which to make a refund resulting from an AAR (See IRC 6230(d)(2)). The TMP or partner must file a petition in court within two years of filing the AAR (See IRC 6228(a) and (b)) for any portion of an AAR the Service does not allow. A suit is normally filed if the TMP or partner does not agree with the Service’s determination regarding the AAR. If the TMP or partner fails to file a timely suit or protect the suit’s statute, the AAR is barred (See IRC 6228(a)(2)(D)). Similar to a refund suit for a normal nonTEFRA claim, the IRC 6228(a) petition is limited to the adjustments requested in the AAR not allowed by the Service or any adjustments made by the Service which offset the reduction in partnership items contained in the AAR (See IRC 6228(a)(5)).
2. Even though partners usually file protective AARs to hold open their own statute to reduce taxable income pending the results of litigation or contingency, it is possible other partners in the partnership may be subject to a deficiency. It is prudent to analyze the related TEFRA partnership AAR, if filed, and verify whether or not the request could result in a deficiency to any partner. If there is a potential deficiency, the assessment statute must be protected. If the partnership has not filed an AAR, a determination needs to be made on the validity of the Partner AAR.
3. A protective AAR must be filed for specific adjustments. Under the doctrine of "variance" , the taxpayer would not be able to file a petition on grounds/adjustments different from their administrative claim. Once a petition is filed, IRC 6228(a)(5) would give the court jurisdiction "to determine only those partnership items . . . not allowed by the Secretary" and any offsets asserted by the Secretary. Partnership items include the amount of those items. Treas. Reg. 301.6231(a)(3)-1(a)(1). Otherwise, the granting of an AAR would not be specific enough to make computational adjustments.
4. A protective AAR may be filed for the same year under TEFRA audit, but a petition may never be filed on it. If an NBAP is issued, but an FPAA has not yet been issued, a protective AAR may be filed. It cannot be petitioned unless an FPAA is not issued within the IRC 6229 period (including any extension by agreement). The petition period in this circumstance is the 6 month period after the expiration of the time period described in IRC 6229 (including any extension by agreement). The protective AAR will be suspensed by the field group controlling the original return until a resolution is made.
5. IRC 6227(a) provides that you cannot file an AAR at all for a taxable year after an FPAA is filed. That is because the FPAA (once issued) is the sole vehicle for contesting partnership items regardless of whether they result in deficiencies or refunds.
6. A protective AAR can always be filed for other years not under audit - i.e., when a deduction is disallowed in an earlier year but may be allowable in the subsequent year for which the AAR is filed. However, if the subsequent year original return was filed, the field should make the subsequent year adjustments during the examination. A protective AAR filed for prior or subsequent years will be suspensed by the field group controlling the original return until a resolution is made.

Limits on Filing an AAR

1. The partnership or partner filed amended return with Form 8082 box 1(b) checked as an AAR must be subject to TEFRA. Until the Form 1065X is made available electronically, partnerships required to file electronically must continue to attach a Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request (AAR) or equivalent to the amended Form 1065. Partnerships filing a paper return should use Form 1065X with item F, checked "AAR" .
2. Generally, any adjustments to partnership items that will result in refunds must be raised in an FPAA or petition to an FPAA or be forever barred. In the absence of such a proceeding, IRC 6511(g) prohibits refund claims except as provided under IRC 6227 and IRC 6230(c) and (d). Claims under IRC 6230(c) and (d) are generally limited to computational and nonpartnership items. This leaves IRC 6227 as the exclusive method for seeking refunds in the absence of a TEFRA administrative and judicial proceeding.
3. A partner must file an AAR within 3 years after the partnership return was filed or the last day for filing such return, whichever is later per IRC 6227(a)(1). (If a TEFRA statute extension agreement is entered into, that agreement also extends the statute of limitations for filing refund claims attributable to partnership items or affected items. The statute is extended until six months after the expiration of the limitations period for assessments. (See IRC 6227(b))
4. A partner may not file an AAR after a notice of FPAA is mailed to the TMP for the same taxable year to which the AAR relates. (See IRC 6227(a)(2)) In addition, a taxpayer cannot file an AAR once they have entered into a settlement agreement for the tax year and partnership for which the AAR relates.
5. The issuance of an NBAP under IRC 6223(a)(1) does not prohibit the filing of an AAR. However, the NBAP limits the filing of a petition on the AAR under IRC 6228.

Campus Classification and Selection of AARs

1. Most AARs are received and classified by agents in the campus in the Classification Section. For AARs received in the field during an exam or as selected from the campus, see IRM 4.31.4.7, AAR Field Procedures.
2. An AAR may be processed by the CPF. See IRM 4.31.4.5 , CPF AAR Procedures for Non-Selected Cases.

Classifying AARs

1. TMP filed AARs will be classified by GS-12, or above, RAs.
2. The classifier will screen the AAR for:

1. AIMS controls on the Key Case partnership or investors. If the key case is open (Status greater than 08), contact the controlling group to determine where to forward the case. If the investor(s) are open, contact the controlling group and coordinate the appropriate course of action in certain situations. The AAR coordinator and partner field group may consider having the field group write the Form 4605 while the CPF maintains control of the case.
2. Identify amended partnership return or REMIC. Determine if it is a true amended partnership return or amended REMIC. Short period returns and general processing errors are returned to AM for correction. For technical issues and other classification issues, follow regular classification procedures. All REMIC returns should be sent to LB&I Tax Shelter Team, M/S 4914, Ogden UT, 84404.
3. Determine if return is SB/SE or LB&I. Use INOLES and asset amount on Form 1065. Total assets greater than $10 million are LB&I. If the total assets are less than $10 million, refer to the BOD Code on INOLES to make the determination. SB/SE returns are processed and classified in Brookhaven. LB&I returns are processed and classified in Ogden.
4. TEFRA determination. Follow IRM 4.31.2.1.1, Determine if a Partnership is TEFRA or NonTEFRA, for TEFRA cases. For non- TEFRA cases follow IRM 4.31.5, NonTEFRA Examination - Field Office Procedures. IRM Exhibit 4.31.2-1 provides a TEFRA Partnership Criteria Flow Chart. If the return is not TEFRA, follow normal classification procedures.

Note:

The box checked on page 2 of the Form 1065 is not enough for a TEFRA determination. Neither is the TEFRA indicator found on BMFOLE. The best practice is to use the Schedules K-1, yK1 or a K-1 Imaging Network (KIN) analysis to make an accurate TEFRA determination.

Note:

If there are material deficiency issues, and less than 90 days remain on the AAR statute of limitations, the CPF should consider issuing an NBAP, a FPAA and untimely notice letter. This includes situations where IRC 6501(c)(7) applies.

Classifying an AAR with Partnership Requesting to Pay the Tax

1. A partnership may file an AAR and ask to pay the tax on behalf of their partners.
2. The classifier or AAR coordinator must select these cases for the field.
3. This is necessary because Counsel must be involved in the creation of a Form 906 settlement agreement. A Form 906 must be used to allow a partnership to agree and pay the deficiency.
4. The field will need to work with their Technical Services Pass-through Coordinator on assessment procedures.

Classifying a Protective AAR

1. Is it a TMP filed AAR for the key case or an AAR for a middle tier?
2. Is there potential for an assessment. If yes, may want to secure an Form 872-P.
3. Open exam in current or subsequent year the AAR should be sent to the field.
4. If key case, was a Form 9248 filed. If yes, execute Form 9248, select if warranted or suspend. If no Form 9248 refile or select if warranted.
5. If middle tier, are all adjustments pass-through items. If yes, refile. If no, select or refile.

CPF AAR Procedures for Non-Selected Cases

1. Determine whether there are any limits on filing the AAR. (See IRM 4.31.4.3 , Limits on Filing an AAR). If limits exist, consider issuing the No Consideration Letter on invalid AARs.
2. Determine the type of AAR. (See IRM 4.31.4.2.3 , Type of AAR.)

1. TMP filed AAR or Partner AAR;
2. Substituted (Form 8082 required) or Non-Substituted AAR; or
3. Assessment or Overassessment AAR.

1. If there is doubt as to whether the case will result in a refund to all impacted partners and the TMP did not elect substituted return treatment, then the AAR must be perfected.
2. In order to perfect a non-substituted AAR, the CPF AAR Coordinator should issue the Perfection Letter to the TMP requesting that the TMP elect substituted treatment. A new Form 1065X or Form 8082 should be sent to the TMP to be completed. It is a best practice to have the TMP submit a new package along with the perfected Form 1065X or Form 8082. If other information such as a schedule showing the affect to each partner is missing, the CPF should secure this information as well.
3. The time frame for filing an AAR must still be open (IRC 6227(a)). The completion of a new Form 1065X or Form 8082 will create a new petition dated under IRC 6228(a)(2)(A) which only protects the refund statute. A Form 872-P should be secured to protect the assessment statute, if necessary.
4. If the taxpayer complies, process as needed.
5. If the taxpayer does not comply, and there is sufficient time on the statute, the AAR may be sent to the field for exam.

TMP Filed AAR - CPF

1. The CPF can take the following actions on a TMP filed AAR:

1. Take No Action on the AAR;
2. Accept the AAR; or
3. Select for field exam.

Take No Action on the TMP Filed AAR - CPF

1. The CPF can take no action on the TMP filed AAR (IRC 6227(c)(2)(A)(iii)).

Note:

The CPF AAR Coordinator will conduct research to establish if all partners reflect all revised pass-through items correctly on the partner’s returns.

1. File a nonTEFRA amended return to align all pass-through items with those of the AAR, or
2. File the original partner income tax return with the amended Schedule K- 1 amounts.

Note:

It is prudent to compare the filing date of the original partnership return to the filing date of the TMP filed AAR. If there is a minimal lapse of time between these two filings, the possibility is greater that the partner returns are correct.

1. The CPF makes a determination that the AAR should be allowed and all partners have incorporated the AAR adjustments either on their original or amended tax return,
2. The CPF makes a determination that the AAR should be allowed and the tax adjustment is minimal. Consider IRM 4.31.4.5.2.1 # , AAR Processing Tolerances, requirements for tolerances. If the taxpayer has not included a Form 1065X, Form 8082 or statement including the required information, this usually indicates the partnership did not intend for the Service to pass-through the adjustments under TEFRA procedures. (See Accepted as Filed procedures below), or
3. Questionable overassessment AARs that are identified near the end of the IRC 6228(a)(2) period, with not enough time remaining to send to the field for verification.

Accept the TMP Filed AAR as Filed - CPF

1. The CPF AAR Coordinator may accept the TMP filed AAR as filed. If accepted, the AAR Coordinator will:

1. Determine whether the TMP filed AAR needs to be processed. If the AAR has enough time on the statute and the AAR Coordinator has determined, possibly through taxpayer contact, that the AAR needs to be processed see IRM 4.31.4.5.1.2.1 , Substituted Return Treatment - CPF, or IRM 4.31.4.5.1.2.2 , Non- Substituted Return Treatment - CPF.
2. If the AAR does not need to be processed because the partners already made the changes to their returns, or is allowable and immaterial, stamp the front page of the amended return "accepted as filed" , close TXMOD controls, and input the TC 971 and 290 for 0, and send to files. If allowable and immaterial, follow the procedures for taking no action per IRM 4.31.4.5.1.1 ,Take No Action on the TMP Filed AAR - CPF.

Substituted Return Treatment - CPF

1. Determine whether the TMP filed AAR is for assessment or overassessment.

Perfect the AAR

1. In order to perfect a non-substituted assessment AAR, the campus should issue a letter to the TMP requesting that the TMP elect substituted treatment. A new AAR package should be requested from the TMP with the Form 1065X or Form 8082 completed correctly. If the TMP does not comply, send the AAR to the field.
2. The time frame for filing an AAR must still be open (IRC 6227(a)). The receipt of a new AAR package will create a new petition date under IRC 6228(a)(2)(A). Counsel recommends requesting a new AAR package rather than simply perfecting the Form 8082.
3. If the statute is short, and the AAR is for a material assessment, then the campus should issue an NBAP, FPAA and untimely notice letter. IRM 4.31.3 explains the process for issuing the notices and follow-up actions.

Substituted Return Processing

1. TMP filed AARs resulting in an assessment need to be processed prior to the expiration of the IRC 6229 statute. TMP filed AARs resulting in a refund, need to be processed prior to the expiration of the IRC 6229.
2. For cases resulting in an assessment, issue the Letter 3904, 60 day Objection Letter, using TSNOTA. The letters will be sent to all direct partners, however only partners with a tax assessment can object. If an objection is received, the case needs to be sent to the field to begin a proceeding.
3. If less than 14 months is on the statute, and the field will not agree to take the case, issue the NBAP, FPAA and untimely notice to direct partners.
4. The 60 day Objection Letter does not need to be issued when the AAR will result in a refund to all partners. For overassessment AARs, where the IRC 6229 statute has expired and substituted treatment was requested, only partners receiving a refund can be processed. These must be processed by the IRC 6228(a)(2) statute. For overassessment cases with less than 12 months on the statute secure an extension with the Form 9248.
5. Follow local linkage procedures
6. If no objections are received, issue TMP Acceptance Letter (Letter 3906) 75 days after issuing the Letter 3904, 60 day Objection Letter. Close Key Case and process adjustments per local procedures.

Non-substituted Return Treatment - CPF

1. If putting into process, follow local linkage procedures
2. Issue Letter 3906, TMP Acceptance Letter. If one or more of the partners is found to be subject to an assessment, and there is an open statute, a statutory notice of deficiency must be issued. The assessment cannot be made from the AAR as the taxpayer did not request substituted return treatment.
3. Follow local closing procedures.

Overassesment AAR Accepted - Letter 4505-A

1. In some cases, the size of the partnership structure makes it inefficient for the campus to process the partner refunds. In such situations, the campus may issue Forms 4505-A to the partnership's direct partners notifying them that they must file claims for refund individually. The partners will be provided with instructions for filing their AAR related amended returns.
2. The letter will include the date by which their partner AARs need to be issued and processed. Unlike regular claims, partner AARs need to be processed within the petition period.
3. If the partner is a tier, the tier will be provided instructions to notify their investors of the need to file an amended return. Those investors will need to file their amended returns per the instructions provided in the letter, along with that letter which was sent to the tier partnership.

AAR Disallowance

1. If the AAR is fully or partially disallowed, Letter 1831, AAR Disallowance Letter, may be issued to the TMP. The case will need to be suspensed until the IRC 6228 statute expires in case a protest or petition is filed. The disallowance letter either fully or partially disallows the adjustments reflected on the AAR, and that determination is normally made in the field.

AAR No Consideration

1. Letter 4622, AAR No Consideration Letter, does not provide for any appeal rights. An AAR may not be considered for one of the following reasons:

1. The AAR was filed after the deadline for filing under IRC 6227. An AAR must be filed before the mailing of a notice of final partnership administrative adjustment to the TMP with respect to such taxable year, and within 3 years after the later of:

• The date on which the partnership return for such year is filed, or
• The last day for filing the partnership return for such year (determined with out regard to extensions), or
• Before the period extended by agreement under IRC 6229(b) and for six months thereafter.

• After 6 months has passed from the date of filing the request under IRC 6227, and
• Until 2 years after the date the request was filed, or
• Before the period extended by agreement under IRC 6228.

• Filed with the service center where the original partnership return was filed,
• Signed by the TMP, and
• Accompanied by revised schedules showing the effects of the proposed changes on each partner and an explanation of the changes.

• Filed in duplicate, the original copy filed with the partner's amended income tax return and the other copy filed with the service center where the partnership return is filed,
• Identify the partner and the partnership by name, address, and taxpayer identification number,
• Specify the partnership taxable year to which the administrative adjustment request applies,
• Relate only to partnership items, and
• Relate only to one partnership and one partnership taxable year.