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IRS.gov Website
Publication 541
taxmap/pubs/p541-008.htm#en_us_201312_publink1000143

Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA)(p13)

rule
TEFRA (Tax Equity and Fiscal Responsibility Act of 1982) is the common acronym used for a set of consolidated examination, processing, and judicial procedures which determine the tax treatment of partnership items at the partnership level for partnerships and limited liability companies (LLCs) that file as partnerships. TEFRA created the unified partnership audit and litigation procedures of Internal Revenue Code sections 6221 through 6234 (TEFRA partnership procedures).
taxmap/pubs/p541-008.htm#en_us_201312_publink1000144
Partnership Item. (p13)
Any item more appropriately determinable at the partnership level. If an item is determined to be a partnership item, all TEFRA rules and procedures apply.
Prior to the enactment of TEFRA, no consolidated proceeding existed for the tax treatment of partnership items at the entity level. As a result, examination, processing, and judicial proceedings for partnerships were conducted at the partner level which required that each partner dealt separately with the IRS and the courts.
TEFRA procedures were designed to streamline examinations of partnerships by requiring that partnership issues be handled in a single, unified partnership-level proceeding instead of multiple proceedings at the partner level. TEFRA also created the Tax Matters Partner or "TMP" which is the main contact between the IRS, the partnership, and its partners during an examination of a partnership. It is important to note that partners other than the TMP are also entitled to participate during the examination process and appellate conferences.
For the purposes of these instructions, the consolidated audit proceedings of Internal Revenue Code sections 6221 through 6234 will be referred to as "TEFRA proceedings." In addition, partnerships and LLCs that are subject to the consolidated audit proceedings of Internal Revenue Code sections 6221 through 6234 will be referred to as "TEFRA partnerships" and those partnerships and LLCs that are not subject to the consolidated audit proceedings will be referred to as "nonTEFRA partnerships."
taxmap/pubs/p541-008.htm#en_us_201312_publink1000145

Small Partnerships and the Small Partnership Exception(p13)

rule
The term "partnership" means any partnership required to file a partnership return pursuant to Internal Revenue Code section 6031. Partnerships whose tax years begin after September 3, 1982 are TEFRA partnerships unless they meet the definition of a small partnership found in Internal Revenue Code section 6231(a)(1)(B)(i). This is also commonly referred to as the "Small Partnership Exception."
To meet the definition of a small partnership, the partnership must pass two tests:
  1. The partnership must have 10 or fewer partners at all times during the tax year. For purposes of the Small Partnership Exception, a married couple filing jointly and their estates are treated as one partner.
  2. All partners must be U.S. persons, resident aliens, C corporations, or estates of deceased partners. For purposes of the Small Partnership Exception, a C corporation is any corporation that is not an S corporation.
Therefore, a partnership is subject to TEFRA procedures if during the tax year any partner is:
taxmap/pubs/p541-008.htm#en_us_201312_publink1000146

Small Partnership TEFRA Election(p13)

rule
A partnership that meets the definition of a small partnership may elect to be a TEFRA partnership by filing Form 8893, Election of Partnership Level Tax Treatment. Once a valid TEFRA election is filed, the small partnership is a TEFRA partnership for the year of the election and all subsequent tax years unless the election is revoked with the consent of the IRS. Form 8894, Request to Revoke Partnership Level Tax Treatment Election, is used by small partnerships to revoke a prior TEFRA election. If its TEFRA election is revoked, the small partnership remains subject to TEFRA for all tax years that the TEFRA election was in effect including the year that the election was first filed.
Note.If a partnership does not qualify as a small partnership for the tax year shown on a TEFRA election revocation, the revocation cannot be made and will not be accepted by the IRS.
taxmap/pubs/p541-008.htm#en_us_201312_publink1000148

Role of Tax Matters Partner (TMP) in TEFRA Proceedings(p13)

rule
Pursuant to Internal Revenue Code section 6231(a)(7) and Regulations section 301.6231(a)(7)-1, the TMP is a general partner designated by the partnership to represent the partners during the TEFRA proceedings. The TMP has special rights and the authority to represent the partners during the TEFRA proceedings. The TMP and the TMP's authorized representative are the only ones that can extend the Internal Revenue Code section 6229 period of limitations for making assessments. The TMP usually selects the forum for litigation of the partnership-level tax dispute: Appeals; U.S. Tax Court; District Court, in the district of the partnership's principal place of business; or U.S. Court of Federal Claims. Notice partners and notice groups (defined below) are also allowed to file protests to go to Appeals or petitions to go to court.
TMPs are designated separately for each tax year. If a partnership is subject to TEFRA procedures, it can designate a partner as the TMP for the tax year for which the return is being filed by completing the Designation of Tax Matters Partner section of Form 1065.
Note.Since the TMP is a position created by statute, if the partnership or LLC is nonTEFRA, it cannot have a TMP.
The TMP can be designated by the partnership on the partnership return or at any time after the filing of the partnership return by filing a statement with the IRS Service Center where the partnership return was orginally filed. If the TEFRA partnership is unable or unwilling to designate a TMP, a TMP can be identified by using the Largest Profits Interest Rule. The TMP can also be designated by the IRS or Tax Court.
Note.Special rules exist for LLCs designating a TMP. See Regulations section 301.6231(a)(7)-2 for more information.
A partner may be designated as the TMP of a partnership for a tax year only if that partner:
  1. Was a general partner or managing member in the partnership or LLC at some time during the tax year for which designation is made; or
  2. Is a general partner or managing member in the partnership or LLC as of the time the designation is made.
For TEFRA purposes, a partner is defined under Internal Revenue Code sections 761 and 6231(a)(2)(B). State law determines whether the partner is a general or limited partner and whether an LLC member is the managing member. Under the Uniform Limited Partnership Act (as adopted by most states) a general partner must have a capital account or contribute services to the partnership, but need not have an allocation of profit and loss for each year.
Note.If a United States person or entity is eligible to be the TMP, a non-United States person or entity cannot be designated TMP without the consent of the IRS.
taxmap/pubs/p541-008.htm#en_us_201312_publink1000152
Notice group.(p14)
A notice group is a group of partners in the aggregate having a five percent or more interest in the profits of a partnership that requests and designates one of their members to receive notices. The designated member of the notice group is treated as a notice partner.
taxmap/pubs/p541-008.htm#en_us_201312_publink1000153
Notice partner.(p14)
In partnerships with 100 partners or fewer, all partners are notice partners. In a partnership having more than 100 partners, all partners owning at least a one percent interest are notice partners. A notice partner is entitled to receive notice of the beginning and conclusion of the TEFRA partnership proceedings.
taxmap/pubs/p541-008.htm#en_us_201312_publink1000154

Statute of Limitations and TEFRA(p14)

rule
There is only one statute of limitations for taxpayers and it is under Internal Revenue Code section 6501. This code section states that the period for assessing any tax shall not expire before three years after the later of:
  1. The date the taxpayer's return was filed, or
  2. The last day for filing the return determined without regard to extensions.
TEFRA created Internal Revenue Code section 6229 which states that the period for assessing any tax attributable to partnership items (or related affected items, defined below) for a partnership shall not expire before three years after the later of:
  1. The date the partnership return was filed, or
  2. The last day for filing the partnership return determined without regard to extensions.
Note.The Internal Revenue Code section 6229 period of limitations for making assessments extends, but cannot shorten, the Internal Revenue Code section 6501 statute. It is the partners' periods of assessment that are extended by this provision.
taxmap/pubs/p541-008.htm#en_us_201312_publink1000156
Affected item.(p14)
A special nonpartnership item that is affected by a partnership item.
taxmap/pubs/p541-008.htm#en_us_201312_publink1000157

Amended Returns and Administrative Adjustment Requests (AARs)(p14)

rule
Administrative adjustment requests are also known as requests for administrative adjustment (RAAs). AARs are amended returns filed either by the TMP on behalf of the entire partnership (partnership-level AAR) or by a partner (partner-level AAR) requesting an administrative adjustment to correct a partnership item reported on the partner's income tax return. Partnership-level AARs are filed on Form 1065-X, Amended Return or Administrative Adjustment Request (AAR), unless the partnership files electronically. Partnership-level AARs filed electronically and partner-level AARs are filed using Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request. For more information on filing AARs, see the Instructions for Forms 1065-X and 8082.
Note.A pass-through entity that is a partner in a TEFRA partnership cannot file an AAR. For example, if a partner in a TEFRA partnership is itself a partnership, the pass-through entity that is a partner cannot file an AAR for partnership items originating from the TEFRA partnership.