§6226 Alternative to payment of imputed underpayment by partnership

Summary

A partnership can choose a different way to handle a tax change after an audit if it acts within 45 days of getting the final adjustment notice. To use this option, the partnership must give the IRS and each partner a statement showing that partner’s share of the adjustments. If it does, each partner’s income tax for the year that includes the date the statement was given will be changed by the amounts that show how the partner’s tax goes up or down for that year and for later years because other tax items change. If a partner that gets a statement is itself a partnership or an S corporation, that partner must file a partnership adjustment tracking report with the IRS and either pass statements on to its partners or compute and pay the imputed underpayment under rules like section 6225. The IRS will make rules for trusts and for timing; the report or payment is due by the audited partnership’s return due date. Penalties and additions to tax follow the rules in section 6221, and partners are liable for them. Interest on an imputed underpayment for which this option is used is worked out at the partner level, from the return due date for the year affected, using the underpayment rate in section 6621(a)(2) but with “5 percentage points” substituted for “3 percentage points.” Definitions: imputed underpayment = the amount the IRS says is owed; reviewed year = the partnership year under audit; audited partnership = the partnership that first chose this option. For the deadline to file a petition for readjustment, see section 6234(a).