In emailed chief counsel advice,[1] counsel explained how and when “money numbers” impact the calculation of the imputed adjustment (IU) for a partnership being examined under the BBA centralized partnership audit regime.  The issue involved adjustments of items that would not directly impact the amounts reported on that year’s Form 1065, but do involve a partnership item stated in terms of dollars.

The email begins by noting “[i]f we adjust any partnership-related item (PRI) that is a ‘money number’ on the Form 1065 or in the partnership’s books and records, it goes into the calculation of the IU.”[2]  The advice continues on to note that “[a]n adjustment to an item that is not an item of income, gain, loss, deduction, or credit (i.e. ‘non-income item’) is always a positive adjustment. See 301.6225-1(d)(2) (definition of positive and negative adjustments).”[3]

The advice goes on to explain:

Under BBA, all adjustments are adjustments and whether an adjustment is included in the IU calculation does not at all depend on whether/how/if the item would be taxed at the partner level. It only matters if we make a change to a “money number” (adjustments to “non-money numbers” like gallons for the fuel credit are always adjustments thakt do not result in an IU). If any adjustment is duplicative or included within another adjustment (ex. a reduction in an expense and an increase in assets if an item was expensed instead of capitalized), the IRS can treat one of those adjustments as zero, solely for purposes of calculating the IU, if it makes sense to do so in that case. See 301.6225-1(b)(4).[4]

The explanation provides the following examples of what would and would not be included in computing the IU:

If you are adjusting the partnership’s inside basis in its assets (i.e. the amounts on the Sch L of the Form 1065 and/or in its books and records), that is a non-income item adjustment and it would be a positive adjustment going into the calculation of the IU. A partner’s outside basis in the partnership is not a PRI as it is not on the partnership return nor it is required to be maintained in the partnership’s books and records. See 301.6241-1(a)(6)(iii). So if you want to adjust the partner’s outside basis, that would be done outside of BBA…[5]

[1] IRS Emailed Counsel Advice 202148006, December 3, 2021, https://www.taxnotes.com/research/federal/irs-private-rulings/e-mail-chief-counsel-advice/irs-advises-on-calculating-imputed-underpayments-of-partnerships/7cnk7 (retrieved December 4, 2021)

[2] IRS Emailed Counsel Advice 202148006, December 3, 2021

[3] IRS Emailed Counsel Advice 202148006, December 3, 2021

[4] IRS Emailed Counsel Advice 202148006, December 3, 2021

[5] IRS Emailed Counsel Advice 202148006, December 3, 2021