SECTION 3. GUIDANCE TO BE

ISSUED

The Treasury Department and the IRS intend to propose regulations under section 6241(11)(B)(vi) regarding two matters that the Secretary has determined present special enforcement considerations. The first matter concerns certain situations in which an adjustment during an examination

Bulletin No. 2019–03 353 January 14, 2019

of a person other than the partnership requires a change to a partnership-related item. Specifically, the regulations will allow the IRS to effectively and efficiently focus on a single partner or a small group of partners with respect to a limited set of partnership-related items without unduly burdening the partnership and avoiding procedural concerns about the appropriate level at which such items must be examined. Consequently, the regulations will provide that the IRS may determine that the centralized partnership audit regime does not apply to adjustments to partnership-related items when the following conditions are met:

(1) The examination being conducted is of a person other than the partnership;

(2) A partnership-related item must be adjusted, or a determination regarding a partnership-related item must be made, as part of an adjustment to a non-partnershiprelated item of the person whose return is being examined; and

(3) The treatment of the partnershiprelated item on the return of the partnership under section 6031(b) or in the partnership’s books and records was based in whole or in part on information provided by, or under the control of, the person whose return is being examined.

The second matter concerns situations where a QSub is a partner in a partnership. The regulations will provide that this situation presents special enforcement considerations because partnership structures with QSubs as partners could have far more than 100 ultimate partners, including many thousands, and still potentially elect out of the centralized partnership audit regime. Allowing such a large partnership to elect out of the centralized partnership audit regime would give rise to significant enforcement concerns for the IRS and frustrate the efficiencies introduced by the centralized partnership regime. As a result, the regulations will provide that section 6221(b) generally does not apply to a partnership with a QSub as a partner. The regulations will also provide, however, that if a partnership meets certain requirements as set forth in the regulations, the partnership may make an election under section 6221(b). Specifically, the regulations will apply a rule similar to the rules for S corporations under section 6221(b)(2)(A). The regulations will also provide that for purposes of determining whether a partnership has 100 or fewer part

ners for the taxable year for purposes of the election under section 6221(b), the partnership must include (1) the statement the partnership is required to furnish to the QSub partner under section 6031(b) and (2) each statement the S corporation that holds 100 percent of the stock of the QSub partner is required to furnish to its shareholders under section 6037(b).

The Treasury Department and the IRS intend to issue proposed and final regulations prior to eighteen months after enactment of the TTCA such that the intended regulations described in this section of the Notice may be applicable to all partnership taxable years beginning after December 31, 2017. Section 7805(b)(2). If final regulations are not issued prior to eighteen months after enactment of the TTCA, the Treasury Department and the IRS intend the regulations to be applicable to partnership taxable years beginning after December 31, 2017 and ending after the date this Notice is issued to the public. Section 7805(b)(1)(C).