Form 541 - Partnerships - Department Of Treasury Internal Revenue Service

Role of Tax Matters Partner

retains the same character when reported by

subject to the consolidated audit proceedings

the recipient that it would have had if reported

will be referred to as “nonTEFRA partnerships.”

(TMP) in TEFRA Proceedings

by the partnership.

Small Partnerships and the

If the amount is not based on partnership in

Pursuant to Internal Revenue Code section

come, it is treated as a guaranteed payment.

Small Partnership Exception

6231(a)(7)

and

Regulations

section

The recipient reports guaranteed payments as

301.6231(a)(7)1, the TMP is a general partner

ordinary income. For additional information on

designated by the partnership to represent the

The term “partnership” means any partnership

guaranteed payments, see

Transactions Be-

partners during the TEFRA proceedings. The

required to file a partnership return pursuant to

tween Partnership and

Partners, earlier.

TMP has special rights and the authority to rep

Internal Revenue Code section 6031. Partner

These payments are included in income by

resent the partners during the TEFRA proceed

ships whose tax years begin after September 3,

the recipient for his or her tax year that includes

ings. The TMP and the TMP's authorized repre

1982 are TEFRA partnerships unless they meet

the end of the partnership tax year for which the

sentative are the only ones that can extend the

the definition of a small partnership found in In

payments are a distributive share or in which

Internal Revenue Code section 6229 period of

ternal Revenue Code section 6231(a)(1)(B)(i).

the partnership is entitled to deduct them as

limitations for making assessments. The TMP

This is also commonly referred to as the “Small

guaranteed payments.

usually selects the forum for litigation of the

Partnership Exception.”

Former partners who continue to make guar

partnershiplevel tax dispute: Appeals; U.S. Tax

To meet the definition of a small partnership,

anteed periodic payments to satisfy the partner

Court; District Court, in the district of the part

the partnership must pass two tests:

ship's liability to a retired partner after the part

nership's principal place of business; or U.S.

nership is terminated can deduct the payments

Court of Federal Claims. Notice partners and

1. The partnership must have 10 or fewer

as a business expense in the year paid.

notice groups (defined below) are also allowed

partners at all times during the tax year.

to file protests to go to Appeals or petitions to

For purposes of the Small Partnership Ex

go to court.

ception, a married couple filing jointly and

Tax Equity and Fiscal

their estates are treated as one partner.

TMPs are designated separately for each

Responsibility Act of

2. All partners must be U.S. persons, resi

tax year. If a partnership is subject to TEFRA

dent aliens, C corporations, or estates of

1982 (TEFRA)

procedures, it can designate a partner as the

deceased partners. For purposes of the

TMP for the tax year for which the return is be

Small Partnership Exception, a C corpora

ing filed by completing the Designation of Tax

TEFRA (Tax Equity and Fiscal Responsibility

tion is any corporation that is not an S cor

Matters Partner section of Form 1065.

Act of 1982) is the common acronym used for a

poration.

set of consolidated examination, processing,

Note. Since the TMP is a position created

and judicial procedures which determine the tax

by statute, if the partnership or LLC is nonTE

treatment of partnership items at the partner

Therefore, a partnership is subject to TE

FRA, it cannot have a TMP.

ship level for partnerships and limited liability

FRA procedures if during the tax year any part

The TMP can be designated by the partner

companies (LLCs) that file as partnerships. TE

ner is:

ship on the partnership return or at any time af

FRA created the unified partnership audit and

Another partnership,

ter the filing of the partnership return by filing a

litigation procedures of Internal Revenue Code

An S corporation which files Form 1120–S,

statement with the IRS Service Center where

sections 6221 through 6234 (TEFRA partner

An LLC which files a Form 1065, U.S. Re

the partnership return was orginally filed. If the

ship procedures).

turn of Partnership Income,

TEFRA partnership is unable or unwilling to

Partnership Item. Any item more appro

An LLC electing S corporation status,

designate a TMP, a TMP can be identified by

priately determinable at the partnership level. If

using the Largest Profits Interest Rule. The

A single member LLC, commonly referred

an item is determined to be a partnership item,

TMP can also be designated by the IRS or Tax

to as a “Disregarded Entity” for federal tax

all TEFRA rules and procedures apply.

Court.

purposes,

A trust, including a grantor trust,

Prior to the enactment of TEFRA, no con

Note. Special rules exist for LLCs designat

A nominee, or

solidated proceeding existed for the tax treat

ing

TMP.

See

Regulations

section

ment of partnership items at the entity level. As

A nonresident alien individual.

301.6231(a)(7)2 for more information.

a result, examination, processing, and judicial

proceedings for partnerships were conducted at

A partner may be designated as the TMP of

Small Partnership TEFRA

the partner level which required that each part

a partnership for a tax year only if that partner:

Election

ner dealt separately with the IRS and the courts.

1. Was a general partner or managing mem

ber in the partnership or LLC at some time

TEFRA procedures were designed to

A partnership that meets the definition of a

during the tax year for which designation is

streamline examinations of partnerships by re

small partnership may elect to be a TEFRA

made; or

quiring that partnership issues be handled in a

partnership by filing Form 8893, Election of

single, unified partnershiplevel proceeding in

2. Is a general partner or managing member

Partnership Level Tax Treatment. Once a valid

stead of multiple proceedings at the partner

in the partnership or LLC as of the time the

TEFRA election is filed, the small partnership is

level. TEFRA also created the Tax Matters Part

designation is made.

a TEFRA partnership for the year of the election

ner or “TMP” which is the main contact between

and all subsequent tax years unless the election

For TEFRA purposes, a partner is defined

the IRS, the partnership, and its partners during

is revoked with the consent of the IRS. Form

under Internal Revenue Code sections 761 and

an examination of a partnership. It is important

8894, Request to Revoke Partnership Level Tax

6231(a)(2)(B). State law determines whether

to note that partners other than the TMP are

Treatment Election, is used by small partner

the partner is a general or limited partner and

also entitled to participate during the examina

ships to revoke a prior TEFRA election. If its TE

whether an LLC member is the managing mem

tion process and appellate conferences.

FRA election is revoked, the small partnership

ber. Under the Uniform Limited Partnership Act

remains subject to TEFRA for all tax years that

For the purposes of these instructions, the

(as adopted by most states) a general partner

the TEFRA election was in effect including the

consolidated audit proceedings of Internal Rev

must have a capital account or contribute serv

year that the election was first filed.

enue Code sections 6221 through 6234 will be

ices to the partnership, but need not have an al

referred to as “TEFRA proceedings.” In addi

location of profit and loss for each year.

tion, partnerships and LLCs that are subject to

Note. If a partnership does not qualify as a

the consolidated audit proceedings of Internal

Note. If a United States person or entity is

small partnership for the tax year shown on a

Revenue Code sections 6221 through 6234 will

TEFRA election revocation, the revocation can

eligible to be the TMP, a nonUnited States per

be referred to as “TEFRA partnerships” and

not be made and will not be accepted by the

son or entity cannot be designated TMP without

those partnerships and LLCs that are not

IRS.

the consent of the IRS.

Publication 541 (December 2013)

Page 13

Form 541 - Partnerships - Department Of Treasury Internal Revenue Service - 2013 Page 13

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