SECTION 4. ALLOCATION OF

CERTAIN PARTNERSHIP ITEMS AND PARTNERSHIP INTEREST BASIS ADJUSTMENTS

.01 Treatment for Covered Taxpayers that are partnerships . If a Covered Taxpayer that is a partnership satisfies all of the applicable requirements provided in section 4.02 of this revenue procedure,

and complies with all information reporting requirements described in section 6 of this revenue procedure, the Internal Revenue Service (IRS) will treat the Covered Taxpayer’s allocation of amounts treated as tax exempt income and allocation of deductions described in section 4.02(1), (2), (3), or (4) of this revenue procedure (as the case may be) as determined in accordance with § 704(b) of the Code. Under § 705(a) of the Code, a partner’s basis in its interest is increased by the partner’s distributive share of tax exempt income and is decreased by the partner’s distributive share of deductions described in section 4.02(1), (2), (3), or (4) of this revenue procedure.

.02 Requirements for Covered Taxpay- ers that are partnerships .

(1) Requirements for the allocation of deductions and amounts treated as tax exempt income arising in connection with the forgiveness of a PPP Loan . A Covered Taxpayer that is a partnership satisfies the requirements of this section 4.02(1) if all of the following conditions are met:

(a) The allocation of deductions resulting from expenditures giving rise to the forgiveness of a PPP Loan is determined under § 1.704-1(b)(3), according to the partners’ overall economic interests in the partnership.

(b) The allocation of amounts treated as tax exempt income under § 7A(i) of the Small Business Act, § 276(b) of the COVID Tax Relief Act, or § 278(a) of the COVID Tax Relief Act, as applicable, is made in accordance with the allocation of the deductions described in section 4.02(1)(a) of this revenue procedure. (c) If any expenditure giving rise to the forgiveness of a PPP Loan is required to be capitalized under the Code (capitalized expenditure), the allocation of amounts treated as tax exempt income under § 7A(i) of the Small Business Act, § 276(b) of the COVID Tax Relief Act, or § 278(a) of the COVID Tax Relief Act, as applicable, is made in accordance with the allocation of the deemed loss, as provided in this section 4.02(1)(c), with respect to the capitalized expenditure’s basis. Solely for purposes of this revenue procedure, the deemed loss with respect to the capitalized expenditure’s basis is treated as a loss allowable as a deduction and is equal to the amount of loss that would be rec

ognized if the property to which the capitalized expenditure relates were treated as disposed of in a fully taxable transaction for no consideration (hypothetical transaction) and, with respect to each partner, the allocation of the deemed loss associated with the capitalized expenditure’s basis is determined under § 1.704-1(b)(3), according to the partners’ overall economic interests in the partnership. The hypothetical transaction and resulting deemed loss are solely for purposes of determining the manner in which tax exempt income described in this section 4.02(1)(c) is allocated to the partnership’s partners.

(2) Requirements for the allocation of deductions and amounts treated as tax exempt income arising in connection with payments made by the SBA on behalf of the taxpayer with respect to a covered loan under § 1112(c) of the CARES Act . A Covered Taxpayer that is a partnership satisfies the requirements of this section 4.02(2) if all of the following conditions are met:

(a) The allocation of deductions resulting from payments of interest and fees described in § 1112(c) of the CARES Act is determined under § 1.704-1(b)(3), according to the partners’ overall economic interests in the partnership.

(b) The allocation of amounts treated as tax exempt income under § 278(c) of the COVID Tax Relief Act attributable to interest and fees described in § 1112(c) of the CARES Act is made in accordance with the allocation of the deductions described in section 4.02(2)(a) of this revenue procedure.

(c) The allocation of amounts treated as tax exempt income under § 278(c) of the COVID Tax Relief Act attributable to payments of principal described in § 1112(c) of the CARES Act is made in accordance with each partner’s share of the liability under § 752 of the Code and the regulations thereunder.

(d) If any expenditure related to the payment of interest and fees described in § 1112(c) of the CARES Act is required to be treated as a capitalized expenditure, the allocation of amounts treated as tax exempt income under § 278(c) of the COVID Tax Relief Act is made in accordance with the allocation of the deemed loss, as described in section 4.02(1)(c) of this revenue procedure, with respect to the

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capitalized expenditure’s basis. Upon the hypothetical transaction, the allocation of the deemed loss is determined under § 1.704-(1)(b)(3), according to the partners’ overall economic interests in the partnership. The hypothetical transaction and resulting deemed loss are solely for purposes of determining the manner in which tax exempt income described in this section 4.02(2)(d) is allocated to the partnership’s partners.

(3) Requirements for the allocation of deductions and amounts treated as tax exempt income arising in connection with the taxpayer receiving an Emergency EIDL Grant, Targeted EIDL Advance, or a Shuttered Venue Operator Grant . A Covered Taxpayer that is a partnership satisfies the requirements of this section 4.02(3) if all of the following conditions are met:

(a) The allocation of deductions resulting from the expenditure of proceeds of an Emergency EIDL Grant, a Targeted EIDL Advance, or a Shuttered Venue Operator Grant is determined under § 1.704-1(b) (3), according to the partners’ overall economic interests in the partnership.

(b) The allocation of amounts treated as tax exempt income under § 278(b) and (d) of the COVID Tax Relief Act is made in accordance with the allocation of the deductions described in section 4.02(3)(a) of this revenue procedure.

(c) If any expenditure paid with the proceeds from an Emergency EIDL Grant, a Targeted EIDL Advance, or a Shuttered Venue Operator Grant is required to be treated as a capitalized expenditure, the allocation of amounts treated as tax exempt income under § 278(b) and (d) of the COVID Tax Relief Act is made in accordance with the allocation of the deemed loss, as described in section 4.02(1)(c) of this revenue procedure, with respect to the capitalized expenditure’s basis. Upon the hypothetical transaction, the allocation of the deemed loss is determined under § 1.704-(1)(b)(3), according to the partners’ overall economic interests in the partnership. The hypothetical transaction and resulting deemed loss are solely for purposes of determining the manner in which tax exempt income described in this section 4.02(3)(c) is allocated to the partnership’s partners.

(4) Requirements for the allocation of deductions and amounts treated as tax exempt income arising in connection with the taxpayer receiving a Supplemental Targeted EIDL Advance or a Restaurant Revitalization Grant . A Covered Taxpayer that is a partnership satisfies the requirements of this section 4.02(4) if all of the following conditions are met:

(a) The allocation of deductions resulting from the expenditure of proceeds of a Supplemental Targeted EIDL Advance or a Restaurant Revitalization Grant is determined under § 1.704-1(b)(3), according to the partners’ overall economic interests in the partnership.

(b) The allocation of amounts treated as tax exempt income under §§ 9672 and 9673 of the ARP is made in accordance with the allocation of the deductions described in section 4.02(4)(a) of this revenue procedure.

(c) If any expenditure paid with the proceeds from a Supplemental Targeted EIDL Advance or a Restaurant Revitalization Grant is required to be treated as a capitalized expenditure, the allocation of amounts treated as tax exempt income under §§ 9672 and 9673 of the ARP is made in accordance with the allocation of the deemed loss, as described in section 4.02(1)(c) of this revenue procedure, with respect to the capitalized expenditure’s basis. Upon the hypothetical transaction, the allocation of the deemed loss is determined under § 1.704-(1)(b)(3), according to the partners’ overall economic interests in the partnership. The hypothetical transaction and resulting deemed loss are solely for purposes of determining the manner in which tax exempt income described in this section 4.02(4)(c) is allocated to the partnership’s partners.

.03 Amended Returns. If a taxpayer has filed an original or amended Federal income tax return or information return, as applicable, for a taxable year ending after March 27, 2020, the taxpayer may file an amended return or an administrative adjustment request under § 6227 of the Code, as applicable, that reflects application of this revenue procedure. See Rev. Proc. 2021-50, 2021-49 I.R.B.___, released November 18, 2021, allowing eligible partnerships to file amended partnership returns under this

revenue procedure if the requirements of section 3 of Rev. Proc. 2021-50 are met.