BBA: Can an FPA Be Issued When the Modification Period Is Open?

PROCEDURALLY TAXING tax notes federal

by Jenni Black Jenni Black is a managing director in Citrin Cooperman’s national tax office and the practice leader of the tax procedure and controversy practice.

She is also a contributing author for Procedurally Taxing.

In this post, Black explores the limitations that exist on the IRS’s ability to issue a notice of final partnership adjustment under the Bipartisan Budget Act of 2015.

This post reflects the author’s personal views and not necessarily those of Citrin Cooperman.

Under the centralized partnership audit regime enacted by the Bipartisan Budget Act of 2015, the IRS must issue a notice of final partnership adjustment in order to make adjustments to partnership-related items. But there are limits on when an FPA can be issued. For example, the period of limitations on making adjustments must be open to make the adjustments in the FPA. Are there other situations in which the IRS can’t just say “hammer time” and issue the FPA? This article will explore the limitations that exist (other than the period of limitations because that’s obvious) on the IRS’s ability to issue the FPA. Grab your Hammer pants 1 and let’s get it started!

Aside from the period of limitations under section 6235 there are really three other restrictions on issuing the FPA, all contained in section 6231. Let’s knock the easy one out of the way so we can get to the good stuff. Under section 6231(c), the IRS cannot issue an FPA if it has already issued an FPA and the partnership filed a petition in response to the FPA (absent fraud, malfeasance, or misrepresentation of a material fact). This rule is similar to that for notices of deficiency under section 6212(c) but is different than the rule under the 1982 Tax Equity and Fiscal Responsibility Act. Under TEFRA, only one notice of final partnership administrative adjustment (FPAA, with two A’s) could be issued (absent fraud, etc.). Period. It didn’t matter if a petition was filed in response to the FPAA or not.2 Under section 6231(b)(2), the IRS cannot mail an FPA “earlier than 270 days after the date on which the notice of proposed partnership adjustment [NOPPA] is mailed.” Seems straightforward enough. But this really contains two restrictions — the IRS must issue a NOPPA before it can issue an FPA and there is a 270-day period during which the IRS “can’t touch this” (unless waived by the partnership). It’s the 270day period I want to focus on.

Once the IRS issues the NOPPA, a partnership has 270 days (apparently Congress was on a 270day kick when it wrote BBA) to request to modify the imputed underpayment contained in the NOPPA in accordance with section 6225(c). Under section 6225(c)(7), the 270 days to request

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I had a pair that was mauve and another where one leg was white and one was black. Fortunately, no pictures survived.

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IRC section 6223(f) (prior to repeal by BBA).

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BBA: Can an FPA Be Issued When the Modification Period Is Open?

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I want to point out that section 6225(c)(7) is titled “Year and day for submission to secretary” (year and a day? The date?) but literally the only time period mentioned in this section is 270 days which, last I checked, was less than a year. I further note that this provision was exactly the same in the “pre-BBA” bill (H.R. 2821, 114th Congress). I don’t even have a guess as to why this one is like this.

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Joint Committee on Taxation, “General Explanation of Tax Legislation Enacted in 2015,” JCS-1-16, at 72 (2016).

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The regulations provide that the modification 270-day period and the FPA-restriction 270-day 5 period are two separate periods. The regulations provide that a waiver of the 270-day restriction on issuing the FPA terminates the time the 6 partnership has to request modification.

Interestingly, there is nothing that provides that the “natural” expiration of the 270-day period described in section 6231(b)(2) terminates the time the partnership has to request modification. As mentioned previously, the IRS and partnership can agree to extend the time the partnership has to request modification. As a result, the time to request modification may still be open when the restriction on issuing the FPA expires. (Query: Could the partnership still request modification?)

Do I think Congress intended section 6231(b)(2) and section 6225(c)(7) (and probably section 6235(a)(2)) to be the exact same 270-day period? Probably? I mean, they’re all 270 days (but some list abilities to extend while others do not). Do I think they did it? Negative, Ghost Rider.

So, if the IRS issues an FPA after the 270-day restriction in section 6231(b)(2) expires even though the modification period is open due to an extension, is the FPA “too legit”? I think so. After all, the only restrictions on issuing an FPA are: (1) the period of limitations must be open (OK, technically it’s not a restriction on issuing an FPA but a restriction on adjustment, but the FPA makes the adjustments); (2) there is no previously

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Reg. section 301.6225-2(c)(3) describes the 270-day period to request modification and reg. section 301.6231-1(b)(2) describes the restrictions on issuing the FPA. Under reg. section 301.6225-2(c)(3)(iii), the 270-day period “described in paragraph (c)(3)(i) of this section (including any extensions)” (which is the time the partnership has to request modification) expires as of the date the partnership and the IRS agree to waive “the 270-day period after the mailing of the NOPPA and before the IRS may issue a [FPA].” It then cites section 6231(b)(2) and reg. section 301.6231-1(b)(2). If you flip over to reg. section 301.6231-1(b)(2), it provides that the FPA cannot be mailed earlier than 270 days after the NOPPA is mailed unless the partnership and the IRS agree to “waive the 270-day period.” It then goes on to direct the reader back to reg. section 301.6225-2(c)(3)(iii) “for the effect of a waiver under this paragraph . . . on the 270-day period for requesting modification under section 6225(c).”

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The regulations technically do not have a way to “waive” the modification period, even though people will colloquially refer to it that way. The partnership waives the restriction on issuing the FPA, which results in the termination of the modification period. But there is no way to independently “waive” the modification period (and I’m not sure why you would want to).

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modification can be extended with the consent of the IRS.3 Therefore, if the partnership extends the time to request modification, it will have longer than 270 days to submit its modification request.

But here’s the thing — nothing ties the period in which a partnership can request modification (270 days plus any extension) under section 6225(c)(7) to the 270 days in which the IRS cannot issue the FPA under section 6231(b)(2). Those sections do not cross-reference each other, nor do they use any of the same terminology (for example, unlike section 6235(a)(2), section 6231(b)(2) doesn’t use the word “modification” or refer to submitting anything to the IRS). Section 6225(c)(7) refers to the ability to extend the 270-day period to request modification (so the time to request modification is a minimum of 270 days), but section 6231(b)(2) contains no corresponding extension.

Are the 270-day periods referred to in section 6225(c)(7) and 6231(b)(2) the same 270-day period? There’s nothing in the statutory language that would suggest that. It’s not even clear to me that the 270-day period described in section 6235(a)(2) is the same 270-day period as either the modification 270-day period or the FPArestriction 270-day period. (Based on the wording of section 6235(a)(2), I think it is an entirely separate period that just happens to also be a minimum of 270 days.) The only thing I am aware of that suggests that the modification of the 270-day period and the FPA-restriction 270-day period are the same is the Joint Committee on Taxation Bluebook. It explains that the issuance of the NOPPA begins the running of a period of 270 days in which the partnership can request modification and notes that “during that same 4 period,” the IRS cannot issue an FPA.

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petitioned FPA; (3) a NOPPA has been issued; and (4) it’s been 270 days from the NOPPA (unless waived). Those boxes can all be checked off regardless of when the modification period expires. Do I think the IRS will do this? No, they have no reason to. But I thought it was interesting, so here we are. 

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