Partnership Representative Under the Centralized Partnership Audit Regime and Election To Apply the Centralized Partnership Audit Regime, 39331-39351 [2018-17002]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 83, Number 154 (Thursday, August 9, 2018)]
[Rules and Regulations]
[Pages 39331-39351]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-17002]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 301

[TD 9839]
RIN 1545-BN41


Partnership Representative Under the Centralized Partnership 
Audit Regime and Election To Apply the Centralized Partnership Audit 
Regime

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulation and removal of temporary regulations.

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SUMMARY: This document contains final regulations regarding the 
designation and authority of the partnership representative under the 
centralized partnership audit regime, which was enacted into law on 
November 2, 2015 by section 1101 of the Bipartisan Budget Act of 2015 
(BBA). These final regulations affect partnerships for taxable years 
beginning after December 31, 2017. This document also contains final 
regulations and removes temporary regulations regarding the election to 
apply the centralized partnership audit regime to partnership taxable 
years beginning after November 2, 2015 and before January 1, 2018 under 
section 1101(g)(4) of the BBA. These final regulations affect 
partnerships for taxable years beginning after November 2, 2015 and 
before January 1, 2018.

DATES: 
    Effective date: These regulations are effective on August 9, 2018.
    Applicability Date: For dates of applicability, see Sec. Sec.  
301.6223-1(h), 301.6223-2(f), and 301.9100-22(e).

FOR FURTHER INFORMATION CONTACT: Concerning the regulations under 
Sec. Sec.  301.6223-1 and 301.6223-2, Joy E. Gerdy Zogby of the Office 
of Associate Chief Counsel (Procedure and Administration), (202) 317-
4927; concerning Sec.  301.9100-22, Jennifer M. Black of the Office of 
Associate Chief Counsel (Procedure and

[[Page 39332]]

Administration), (202) 317-6834 (not toll-free numbers).

SUPPLEMENTARY INFORMATION: 

Background

    This document contains final regulations to amend the Procedure and 
Administration Regulations (26 CFR part 301) under Subpart--Tax 
Treatment of Partnership Items to implement the rules for the 
partnership representative under the centralized partnership audit 
regime enacted by section 1101 of the BBA, Public Law 114-74. Section 
1101 of the BBA was amended on December 18, 2015, by the Protecting 
Americans from Tax Hikes Act of 2015, Public Law 114-113, and on March 
23, 2018 by the Tax Technical Corrections Act of 2018, which was 
enacted into law as part of the Consolidated Appropriations Act of 
2018, Public Law 115-141. Section 301.6223-1 provides the rules 
regarding the designation of the partnership representative, Sec.  
301.6223-2 provides the rules regarding the authority of the 
partnership representative, and Sec.  301.9100-22 provides the rules 
for making the election under section 1101(g)(4) of the BBA with 
respect to returns filed for partnership taxable years beginning after 
November 2, 2015 and before January 1, 2018.
    On August 5, 2016, the Treasury Department and the IRS published in 
the Federal Register (81 FR 51795) temporary regulations (TD 9780) 
regarding the time, form, and manner for making an election to apply 
the centralized partnership audit regime to partnership taxable years 
beginning after November 2, 2015 and before January 1, 2018. On the 
same day, the Treasury Department and the IRS published in the Federal 
Register (81 FR 51835) a notice of proposed rulemaking (REG-105005-16) 
cross-referencing the temporary regulations. No comments were received 
in response to the proposed regulations, and no hearing was requested 
or held.
    On June 14, 2017, the Treasury Department and the IRS published in 
the Federal Register (82 FR 27334) a notice of proposed rulemaking 
(REG-136118-15) regarding a number of provisions of the centralized 
partnership audit regime, including section 6223, relating to the 
partnership representative (June 14 NPRM). A public hearing regarding 
the proposed regulations was held on September 18, 2017. The Treasury 
Department and the IRS also received written public comments in 
response to the proposed regulations, including comments regarding the 
partnership representative under section 6223.
    On November 30, 2017, the Treasury Department and the IRS published 
in the Federal Register (82 FR 56765) a notice of proposed rulemaking 
(REG-119337-17) regarding international rules under the centralized 
partnership audit regime. On December 19, 2017, the Treasury Department 
and the IRS published in the Federal Register (82 FR 27071) a notice of 
proposed rulemaking (REG-120232-17) regarding certain procedural rules 
under the centralized partnership audit regime, including proposed 
Sec.  301.6231-1 regarding notices that are required to be mailed to 
partnerships (December 19 NPRM). On January 2, 2018, the Treasury 
Department and the IRS published in the Federal Register (82 FR 28398) 
final regulations for electing out of the partnership audit regime. On 
February 2, 2018, the Treasury Department and the IRS published in the 
Federal Register (83 FR 4868) a notice of proposed rulemaking (REG-
118067-17) regarding rules for adjusting tax attributes under the 
centralized partnership audit regime.
    After careful consideration of all written public comments and 
statements made during the public hearing relating to section 6223, the 
portions of the June 14 NPRM relating to section 6223 are adopted as 
amended by this Treasury Decision. These amendments are discussed in 
the next section. Examples were revised to conform to the amendments 
discussed in the next section, and clarifying and editorial revisions 
were also made. The Treasury Department and the IRS received no 
comments with respect to proposed Sec.  301.9100-22 and made no 
substantive revisions to the proposed regulations. Accordingly, the 
final regulations adopt the proposed regulations without any 
substantive change. Minor editorial changes were made. The temporary 
regulations are removed.

Summary of Comments and Explanation of Revisions

1. Partnership Representative

    In response to the June 14 NPRM, the Treasury Department and the 
IRS received 33 written comments, and five statements were provided at 
the public hearing. All comments (both written and provided orally at 
the public hearing) were considered, and written comments are available 
for public inspection at www.regulations.gov or upon request. This 
preamble addresses only the comments or portions of comments relating 
to the proposed regulations under section 6223, which are the proposed 
regulations from the June 14 NPRM being finalized in this Treasury 
Decision. Comments, or any portion of a comment, that relate to other 
aspects of the proposed regulations in the June 14 NPRM that have not 
yet been finalized will be addressed when final regulations regarding 
those provisions are published. The comments relating to the proposed 
regulations under section 6223 cover a broad range of topics, including 
eligibility to serve as the partnership representative, designating and 
changing a partnership representative, and the binding effect and 
authority of the partnership representative. These comments were 
considered and revisions to the regulations were made in response to 
the comments.
A. Eligibility To Serve as the Partnership Representative
    Proposed Sec.  301.6223-1(b)(1) provided that a partnership may 
designate any person that has a substantial presence in the United 
States and that has the capacity to act to be the partnership 
representative. If an entity is designated as the partnership 
representative, the partnership must appoint a designated individual to 
act on the entity's behalf. See proposed Sec.  301.6223-1(b)(2), (3), 
and (4).
    One comment recommended that Sec.  301.6223-1(b)(1) explicitly 
provide that a disregarded entity can serve as the partnership 
representative. This comment has been adopted. Any person as defined in 
section 7701(a)(1), including an entity, can serve as the partnership 
representative provided that person meets the requirements of Sec.  
301.6223-1(b). Therefore, Sec.  301.6223-1(b)(1) has been revised to 
clarify that a disregarded entity can be a partnership representative. 
Because a disregarded entity is not an individual and is an entity 
partnership representative, the partnership must appoint a designated 
individual to act on behalf of the disregarded entity in accordance 
with Sec.  301.6223-1(b)(3). In addition, both the disregarded entity 
and the designated individual must have substantial presence as 
described in Sec.  301.6223-1(b)(2).
    Section 301.6223-1(b)(1) has also been revised to clarify that a 
partnership may designate itself as its own partnership representative. 
The rules regarding eligibility to serve as a partnership 
representative are designed to permit the partnership to designate the 
person it believes is most appropriate to serve as partnership 
representative, provided that person meets the requirements of Sec.  
301.6223-1(b)(2) (substantial presence) and

[[Page 39333]]

Sec.  301.6223-1(b)(3) (designated individual). Therefore, a 
partnership may serve as its own partnership representative if the 
partnership has substantial presence in the United States and also 
appoints a designated individual that has a substantial presence in the 
United States to act on the partnership's behalf in the partnership's 
role as partnership representative.
    One comment recommended that the regulations confirm that, in the 
case of an entity designated as partnership representative, the 
designated individual does not have to be an employee of that entity. 
Nothing in the regulations requires that the designated individual be 
an employee of the entity partnership representative. As explained in 
part 4.F. of the preamble to the June 14 NPRM, an entity with no 
employees is permitted to be the partnership representative provided 
the partnership appoints a designated individual to act on behalf of 
that entity and both the entity and the designated individual have 
substantial presence in the United States. Because the plain language 
of the regulation does not require the designated individual to be an 
employee of the entity partnership representative, no clarification is 
necessary and the comment was not adopted.
    Another comment suggested that a partnership should not be required 
to appoint a designated individual to act for an entity partnership 
representative until the IRS issues a notice of administrative 
proceeding (NAP) or the partnership files a valid administrative 
adjustment request (AAR) under section 6227. This comment was not 
adopted. The purpose of the designated individual requirement is to 
have an individual identified who can act on behalf of the entity 
partnership representative prior to the beginning of an administrative 
proceeding under subchapter C of chapter 63 (administrative 
proceeding). If no designated individual is appointed and the IRS 
initiates an administrative proceeding, neither the partnership nor the 
IRS will know who has the authority to act on behalf of the entity 
partnership representative. This could delay the beginning of the 
proceeding and consequently slow down the administrative proceeding.
    As explained in part 2.D. of the preamble to the June 14 NPRM, 
these types of delays frequently occurred under TEFRA. Under TEFRA, 
partnerships and the IRS often spent a significant amount of time 
establishing that a person designated as the tax matters partner (TMP) 
was qualified to be the TMP or, in the case of an entity TMP, 
identifying and locating an individual to act on the entity's behalf. 
Also as explained in part 2.D. of the preamble to the June 14 NPRM, the 
introduction of the partnership representative concept under the 
centralized partnership audit regime was intended to address the 
shortcomings of the TMP rules. Accordingly, the proposed regulations 
required the partnership to identify and appoint a designated 
individual prior to the start of an administrative proceeding to avoid 
a delay related to locating and confirming the identity of an 
individual to act on behalf of an entity partnership representative. 
With that objective in mind, the final regulations maintain the rule 
that in the case of an entity partnership representative, the 
partnership must appoint a designated individual at the time the 
partnership representative is designated.
    Another comment suggested that the entity partnership 
representative itself, rather than the partnership, should appoint the 
designated individual. The partnership makes the initial designation of 
the partnership representative on the partnership's return. When an 
entity is chosen, the partnership must appoint a designated individual 
to act on behalf of the entity partnership representative. See Sec.  
301.6223-1(c)(2). While this rule requires that the partnership appoint 
the designated individual, nothing in the regulations precludes the 
entity partnership representative from identifying who the designated 
individual should be and communicating that decision to the 
partnership. Ultimately, however, the partnership must determine who 
will be the partnership representative. Determining who will be the 
designated individual to act on behalf of an entity partnership 
representative is part of that determination. Therefore, the final 
regulations retain the rule that the partnership must appoint the 
designated individual on its partnership return for the relevant 
taxable year.
    This rule ensures that designation of the entity partnership 
representative and appointment of the designated individual occur 
simultaneously on the partnership return with the result that it will 
be clear to both the partnership and the IRS at the time the 
partnership return is filed who has the authority to act on behalf of 
the partnership for the taxable year for which the return is filed for 
purposes of the centralized partnership audit regime. As discussed 
previously in this section of the preamble, under TEFRA, the IRS spent 
significant time and resources determining who was the TMP. If that TMP 
was an entity, the IRS and taxpayers spent additional time and 
resources determining who could act on behalf of the entity TMP under 
state law. Moreover, in cases where state law permitted an entity to 
act on behalf of an entity TMP, the IRS and the partnership had to 
identify an individual who could act on behalf of that entity to 
determine someone who could ultimately act on behalf of the entity TMP. 
The rule under Sec.  301.6223-1(c)(2) allows the IRS and the 
partnership to readily identify who can act on behalf of the 
partnership representative without having to inquire into who has the 
state law authority to act on behalf of the entity partnership 
representative. Because the partnership makes the designated individual 
appointment under the final regulations, the rule eliminates the time 
spent determining who can act for the partnership.
    This rule is also necessary because under the centralized 
partnership audit regime an entity partnership representative can only 
act through a designated individual. To achieve this, the partnership 
must appoint the designated individual for the entity partnership 
representative to take action under the centralized partnership audit 
regime. Prior to the appointment of a designated individual, the entity 
partnership representative does not have the ability to act under the 
centralized partnership audit regime. Accordingly, the comment 
recommending the partnership representative make the designated 
individual appointment was not adopted, and Sec.  301.6223-1(b)(3)(ii) 
has been modified to clarify that the partnership must appoint the 
designated individual.
i. Substantial Presence
    Section 6223(a) provides that a partnership representative must 
have a substantial presence in the United States. Proposed Sec.  
301.6223-1(b)(2) provided that a person has substantial presence in the 
United States for purposes of section 6223 if the person is able to 
meet in person with the IRS in the United States at a reasonable time 
and place, has a United States street address and telephone number 
where the person can be reached during normal business hours, and has a 
United States taxpayer identification number (TIN). Several comments 
suggested that the first two criteria for substantial presence were too 
vague and recommended clarification of what is considered reasonable 
with respect to the time and place for meetings between

[[Page 39334]]

the partnership representative and the IRS and whether the reference to 
normal business hours is determined based on the IRS's business hours 
or based on the partnership's business hours.
    Section 301.6223-1(b)(2) is designed to allow the partnership and 
the IRS maximum flexibility to determine mutually convenient times to 
meet, to schedule phone calls, and to share information, while at the 
same time ensuring that the partnership and its books and records are 
available to the IRS during the administrative proceeding. Because what 
constitutes a reasonable time and place depends on the facts and 
circumstances, providing specific rules by regulation applicable to 
every circumstance that could arise in an administrative proceeding is 
not feasible and, even if it were, doing so would interfere with rather 
than facilitate a productive environment for the administrative 
proceeding. There are existing regulations relating to the reasonable 
time and place for an examination in Sec.  301.7605-1 that are 
applicable to the centralized partnership audit regime. Section 
301.7605-1(a) states: ``The time and place of examination . . . are to 
be fixed by an officer or employee of the Internal Revenue Service, and 
officers and employees are to endeavor to schedule a time and place 
that are reasonable under the circumstances.'' To address the comment, 
the regulations under Sec.  301.6223-1(b)(2) have been clarified to 
include a cross-reference to these provisions.
    With respect to the comment regarding the meaning of ``normal 
business hours,'' the Treasury Department and the IRS agree that this 
terminology is confusing. In addition, cross-referencing the rules for 
the time and place of examination under Sec.  301.7605-1 makes this 
term unnecessary. Therefore, the final regulations remove the reference 
in Sec.  301.6223-1(b)(2)(ii) to normal business hours. The partnership 
representative still must have a telephone number with a United States 
area code, but the reference to normal business hours has been removed 
to avoid confusion regarding what constitutes normal business hours.
    The Treasury Department and the IRS also revised the phrase in 
Sec.  301.6223-1(b)(2)(i)--``The person is available to meet in person 
with the IRS''--to read--``The person makes themselves available to 
meet in person with the IRS.'' This change was made to distinguish 
between a partnership representative who is generally available to meet 
and works with the IRS to facilitate communications and a partnership 
representative who is generally available but refuses to meet with the 
IRS. Examples have also been added under Sec.  301.6223-1(b)(4) to 
illustrate this clarification.
    Another comment recommended that regulations under proposed Sec.  
301.6223-1(b)(2) establish a ``safe harbor'' for substantial presence 
that would allow the partnership to designate a location in the United 
States for purposes of communications between the partnership 
representative and the IRS, similar to how businesses designate a 
registered agent and an address for accepting service of process. 
Section 301.6223-1(b)(2)(ii) requires the partnership to provide a 
United States street address and phone number where the partnership 
representative can be reached by United States mail and telephone. This 
rule already allows the partnership to designate a location within the 
United States for communications between the partnership representative 
and the IRS, including receipt of formal documents from the IRS. 
However, in addition to having a United States street address and 
telephone, a partnership representative must also make themselves 
available to meet in person with the IRS. As discussed in part 2.D of 
the preamble to the June 14 NPRM, the purpose of the substantial 
presence requirement is to ``ensure that the person selected to 
represent the partnership will be available to the IRS in the United 
States when the IRS seeks to communicate or meet with the 
representative.'' Because the partnership representative must make 
themselves available to meet with the IRS, the partnership 
representative may have any telephone number with a United States area 
code and a street address in any location in the United States, 
provided the telephone number and street address allow the IRS to 
contact the partnership representative. Consequently, an explicit 
``safe harbor'' for substantial presence is unnecessary, and the 
comment has not been adopted.
ii. Capacity To Act
    One of the components of eligibility to serve as a partnership 
representative or designated individual under the proposed regulations 
was the capacity to act. Proposed Sec.  301.6223-1(b)(4) described five 
specific events that cause a person to lose the capacity to act for 
purposes of section 6223 and included a catch-all provision for any 
unforeseen circumstances in which the IRS reasonably determined a 
person may no longer have the capacity to act. If a partnership 
representative lost the capacity to act under proposed Sec.  301.6223-
1(b)(4), the IRS could determine that the designation of the 
partnership representative or appointment of a designated individual 
was not in effect. See proposed Sec.  301.6223-1(f). Additionally, 
where all general partners lost the capacity to act, a partner other 
than a general partner could sign a revocation of the partnership 
representative. See proposed Sec.  301.6223-1(e).
    In response to the capacity-to-act requirements in the proposed 
regulations, one comment recommended that the list of circumstances 
under proposed Sec.  301.6223-1(b)(4) be expanded to include other 
specific situations such as when the person has been convicted of a 
felony or a crime that involves dishonesty or breach of trust, when the 
person is in bankruptcy or receivership, or when the person is known to 
be under criminal investigation for a violation of the Code. The same 
comment recommended that standards or limitations be included within 
the catch-all provision under proposed Sec.  301.6223-1(b)(4)(vi), 
which provides that a person loses the capacity to act in ``any similar 
situation where the IRS reasonably determines the person may no longer 
have capacity to act.'' Another comment suggested that if a partnership 
becomes aware that the partnership representative lacks the capacity to 
act, the regulations should require the partnership to revoke that 
partnership representative's designation.
    The capacity-to-act requirement was intended to correspond to 
situations where the person would not be able to represent the 
partnership during the administrative proceeding, for instance, when 
the person died, was legally incapacitated, or was otherwise unable to 
act during the administrative proceeding. After reviewing the comments 
regarding capacity to act, the Treasury Department and the IRS 
reevaluated whether such a requirement is needed. Rather than creating 
a regulatory requirement for who should be the partnership 
representative or a designated individual, the Treasury Department and 
the IRS believe that partnerships are in the best position to make the 
decision as to who can best represent them before the IRS. For the 
reasons discussed below, the Treasury Department and the IRS have 
determined that regulations regarding capacity to act would provide an 
unnecessary limitation on the partnership's choice of who it believes 
is the best person to act on the partnership's behalf. Therefore, the 
comments have not been adopted, and

[[Page 39335]]

the capacity-to-act requirement has been removed from the final 
regulations.
    Under the proposed regulations, the partnership had complete 
control over who is designated as the partnership representative and 
appointed as a designated individual so long as the person designated 
or appointed satisfies the substantial presence requirement. Further, 
the partnership had the unilateral power to revoke the partnership 
representative for any reason. Therefore, the partnership can 
adequately protect itself if the concept of capacity is removed since 
it can revoke the partnership representative.
    Beyond requiring a partnership representative to have a substantial 
presence in the United States, the Treasury Department and the IRS have 
determined that it is not the proper role of the IRS to make further 
inquiries into whether, in the view of the IRS, the designated 
partnership representative or designated individual is the right person 
to represent the partnership. For example, some partnerships may not 
wish to be represented by a partnership representative that has filed 
for bankruptcy. But, in other cases, the partnership may determine that 
the partnership representative's bankruptcy status is not relevant to 
whether the person can serve as partnership representative.
    By setting forth specific capacity factors, like bankruptcy, for 
making someone ineligible to act on behalf of the partnership, the 
regulations would be unnecessarily supplanting the partnership's 
judgment with that of the government. Accordingly, the final 
regulations remove the capacity-to-act requirement entirely because the 
partnership should have as much flexibility as possible in determining 
a partnership representative so long as the person meets the 
substantial presence requirements. Because this section has been 
removed, the cross-reference to that section in Sec.  301.6223-1(e) has 
also been removed. In addition, because this section has been removed, 
the comment suggesting that the IRS clarify that the partnership must 
require a revocation if it becomes aware that one of the capacity-to-
act circumstances applies to its partnership representative is 
inapplicable and therefore is not adopted.
    Although the capacity-to-act section has been removed from the 
final regulations, the IRS may still determine that a designation of 
the partnership representative is not in effect due to circumstances 
that would have resulted in a partnership representative not having 
capacity to act because at least some of the capacity-to-act 
requirements overlapped with substantial presence. For instance, the 
IRS may determine that a partnership representative designation is not 
in effect if the partnership representative is incarcerated because 
that partnership representative cannot make herself available to the 
IRS, which means the partnership representative does not satisfy the 
substantial presence requirement. Having a separate capacity-to-act 
requirement was duplicated in these circumstances.
    Two of the specified circumstances listed in proposed Sec.  
301.6223-1(b)(4) involve determinations by a court that restrict a 
partnership representative's or designated individual's ability to 
serve. These circumstances would likely arise very rarely, and the IRS 
would likely not know these circumstances exist unless they were 
brought to the IRS's attention by a partner or the partnership itself. 
In the case of a court order stating that a person does not have 
capacity to manage his or her estate, the IRS may not know about this 
issue because the very nature of such a proceeding is sensitive and may 
not be made public. In the case of a court order in which an injunction 
was sought, the most likely parties to seek such an injunction would be 
partners or the partnership itself. The partnership, generally through 
its reviewed year partners, may revoke a partnership representative 
designation without the need for a court order, which would alleviate 
the need for a partnership or partner to pursue a court-ordered 
injunction. Even if such a court order existed, the IRS would need to 
review the court order to determine to what degree it inhibited a 
partnership representative from acting on behalf of the partnership. 
Because these circumstances would be rare, and because there would need 
to be actual knowledge of the court order as well as at least some 
interpretation of that court order, the Treasury Department and the IRS 
have removed these circumstances, which were previously listed in 
proposed Sec.  301.6223-1(b)(4), from the regulations.
B. Designating or Changing a Partnership Representative or a Designated 
Individual
    Multiple comments recommended changes to the timing and mechanics 
for designating, appointing, and changing a partnership representative 
and designated individual. The comments included suggestions about the 
timing of when a change should occur, the effective date of such a 
change, notice requirements surrounding the change, and who can revoke 
a designation.
    One comment suggested clarification regarding whether a partnership 
that has elected out of the centralized partnership audit regime under 
section 6221(b) must designate a partnership representative. A 
partnership that has elected out of the centralized partnership audit 
regime is not required to designate a partnership representative. The 
partnership representative is the person who has the sole authority to 
act on behalf of the partnership under the centralized partnership 
audit regime. If a partnership is not subject to the centralized 
partnership audit regime, a partnership representative has no authority 
with respect to the partnership. Nothing in the regulations requires a 
partnership that has elected out of the regime to designate a 
partnership representative. Therefore, the comment was not adopted.
i. Time for Changing the Partnership Representative
    Under proposed Sec.  301.6223-1(d)(2) and (e)(2), a partnership 
representative designation can only be changed after the IRS mails a 
NAP or in conjunction with the filing of a valid AAR by the partnership 
under section 6227. Several comments suggested that proposed Sec.  
301.6223-1(d)(2) and (e)(2) be revised to allow for changes to the 
partnership representative at any time after the original designation. 
One comment specifically recommended that the IRS adopt a system to 
monitor designations of and changes to partnership representatives in 
the same way that the IRS monitors the last known address of taxpayers.
    Allowing partnerships to change the partnership representative 
designation with the IRS at any time after the original designation is 
unnecessary and burdensome from a tax administration perspective and 
may increase burden for partnerships that are not selected for an 
administrative proceeding and have not filed an AAR. This is because 
the responsibilities and authority of a partnership representative are 
generally applicable only if a partnership is selected for examination 
as part of an administrative proceeding or the partnership files an 
AAR. In many cases, allowing partnerships to change the partnership 
designation before an administrative proceeding begins or before the 
partnership files an AAR means that the partnership would be filing a 
request to change a partnership representative that never takes, or 
plans to take, any action under the centralized partnership audit 
regime.
    Further, preparing and filing a request to change a designation of 
a partnership

[[Page 39336]]

representative requires partnerships to expend time and resources. 
Because the partnership representative designation may differ each 
year, tracking which partnership representatives were listed on which 
returns, and if a change were made, tracking those changes, can become 
complex. A partnership agreement requiring consultation with the 
partners (which may differ from year to year) when there is a change in 
the partnership representative adds further complexity.
    For its part, the IRS would have to process requests to change a 
designation and associate that change with the correct partnership 
account even if the IRS never selects the partnership taxable year for 
an administrative proceeding and, therefore, never interacts with the 
partnership representatives. Currently, the IRS does not have a system 
to process these changes outside of the administrative proceeding 
process or when an AAR is filed.
    A comment recommended that the IRS develop a system to track 
changes in the designation of the partnership representative that is 
similar to the system used to monitor a taxpayer's last known address. 
Development of such a system would be very costly with little benefit 
to be gained because, as discussed above, the majority of changes would 
be for partnerships whose partnership representatives would never take 
any action on behalf of such partnerships.
    Accordingly, the final regulations maintain the rule that a 
partnership representative may only be changed in the context of an 
administrative proceeding or in conjunction with the filing of a valid 
AAR. As the IRS gains experience with the centralized partnership audit 
regime, and methods are identified to alleviate the administrative and 
regulatory burden created by changes to a partnership representative 
designation before the commencement of an administrative proceeding, 
the rules may be revisited in future forms, instructions, or other 
guidance.
    To address the aspect of the comments that reflect a desire to be 
able to change the partnership representative prior to the beginning of 
the administrative proceeding, Sec.  301.6223-1(e)(2) has been revised 
to allow the partnership to change the partnership representative 
through revocation when the partnership is notified that the 
partnership return is selected for examination as part of an 
administrative proceeding, in addition to when the NAP is mailed. In 
general, the IRS will issue the partnership, but not the partnership 
representative, a notice of selection for examination prior to mailing 
the NAP to inform the partnership that it is being selected for 
examination. Under the proposed regulations, the partnership was not 
able to change the partnership representative until it received the 
NAP.
    This rule will provide the partnership an opportunity to change its 
partnership representative before an administrative proceeding 
commences, allowing the partnership to be represented by the 
partnership representative of its choice throughout the administrative 
proceeding. Because the notice of selection for examination is only 
issued to the partnership, and not the partnership representative, this 
rule allows the partnership to make a change to the partnership 
representative without the involvement of the partnership 
representative (whom the partnership may be removing for cause). As a 
result of the revised rule, the NAP can be sent to the partnership's 
preferred partnership representative at the time the administrative 
proceeding begins. The rule also allows the partnership to change a 
designated individual prior to the beginning of the administrative 
proceeding.
    Other comments suggested that the designation of the partnership 
representative should be required on an annual basis, that the 
currently designated partnership representative should have the sole 
authority to represent the partnership for all open years, and that 
partnerships should be required to designate one partnership 
representative for all years in the context of a multi-year 
administrative proceeding.
    Under Sec.  301.6223-1(c), a partnership must designate the 
partnership representative on the partnership return for that 
partnership taxable year, that is, Form 1065, U.S. Return of 
Partnership Income. Identification of a partnership representative on 
an annual basis with the return provides certainty regarding who is the 
partnership representative for a particular taxable year. The other 
systems suggested in the comments would be difficult to administer and 
could result in the IRS having to determine that no designation of a 
partnership representative is in effect because of this uncertainty.
    Designation of a partnership representative on the return for that 
taxable year is also not an undue burden on the partnership. The 
identification, selection, and designation of the partnership 
representative is wholly within the discretion of the partnership 
(provided the person designated meets the requirements under Sec.  
301.6223-1(b)). Nothing in the proposed regulations prevents a 
partnership from designating the same partnership representative on 
each partnership return it files or, once administrative proceedings 
with respect to more than one taxable year have commenced, designating 
one partnership representative (through the revocation procedures 
described in proposed Sec.  301.6223-1(e)) to act for the partnership 
for all years subject to the administrative proceeding.
    Further, the partnership representative plays an important role in 
representing the interests of the partnership and, by extension, the 
partners for the taxable year subject to an administrative proceeding. 
The make-up of the partners in a partnership may change from tax year 
to tax year, and the economic arrangements within the partnership and 
between partners may also change. The partnership and its partners for 
each particular taxable year are in the best position to determine who 
the partnership representative should be if that particular taxable 
year is subject to an administrative proceeding. For these reasons, the 
comments have not been adopted.
ii. Resignation
    Proposed Sec.  301.6223-1(d) provided the rules for resignations of 
partnership representatives and designated individuals. Proposed Sec.  
301.6223-1(d)(1) provided that a resignation by a partnership 
representative ``may'' include a designation of a successor partnership 
representative. However, when the resignation was made with the filing 
of an AAR, proposed Sec.  301.6223-1(d)(2) provided that the 
partnership representative ``must'' designate a successor partnership 
representative. Proposed Sec.  301.6223-1(d)(3) provided that a 
resigning designated individual ``may, but is not required to,'' 
designate a successor.
    One comment noted the differences in the quoted language of these 
provisions and recommended that the final regulations be clarified to 
explain the consequences, if any, of those differences. The comment 
also questioned why the proposed regulations required designation of a 
successor partnership representative in the case of an AAR resignation, 
but not in the case of resignation that occurs during an administrative 
proceeding. The comment suggested that the rules should require 
designation of a successor for all resignations. In contrast, another 
comment recommended that a partnership representative never be 
permitted to designate a successor partnership

[[Page 39337]]

representative and suggested that the partnership have a 30-day window 
after a resignation to designate a successor partnership 
representative.
    After considering these comments, the final regulations remove the 
ability of a resigning partnership representative or designated 
individual to designate a successor. Under the proposed rule, a 
resigning partnership representative had the power to designate a 
partnership representative even though the partnership might not 
approve of the new partnership representative. For instance, this could 
occur in a situation where the partnership representative is resigning 
due to an adverse relationship with the partnership. To avoid this 
result, the resignation of a partnership representative or designated 
individual should be the final action of that person for purposes of 
the centralized partnership audit regime.
    For similar reasons, a resigning partnership representative should 
not be able to resign by filing an AAR. The partnership representative 
or designated individual may be revoked simultaneously with the filing 
of an AAR, though an AAR may not be filed solely for that purpose. See 
proposed Sec.  301.6227-1(a). However, it is unfair to the partnership 
to allow a resigning partnership representative to request adjustments 
to items of a partnership. Accordingly, the final regulations have been 
revised to prohibit a resignation at the time of the filing of an AAR.
    Proposed Sec.  301.6223-1(d)(3) provided that a resignation of a 
designated individual is ``subject to the time of resignation 
restrictions described in [proposed] Sec.  301.6223-1(d)(2),'' that is, 
the timing rules that apply to a resignation of a partnership 
representative. One comment requested clarification of whether the 
ability of a designated individual to resign is subject to all of the 
restrictions in proposed Sec.  301.6223-1(d)(2) or whether the quoted 
language means some restrictions do not apply. As discussed above, the 
final regulations have been revised to remove the ability of a 
partnership representative to resign with the filing of an AAR; a 
partnership representative may resign only after a NAP has been issued 
by the IRS, or at such other time as prescribed by the IRS in other 
guidance. The final regulations have also been revised to provide that 
the rules governing when and how a partnership representative may 
resign also apply to designated individuals. Section 301.6223-1(d) 
provides specific rules explaining how a designated individual resigns. 
Therefore, clarification is not necessary, and the comment was not 
adopted.
iii. Revocation
    Proposed Sec.  301.6223-1(e)(3)(i) provided that a revocation must 
be signed by a person who was a general partner at the close of the 
taxable year for which the partnership representative designation is in 
effect as shown on the partnership return for that taxable year. One 
comment suggested that the language ``as shown on the partnership 
return'' be deleted to make clear that a partnership is not limited to 
revoking only the initial partnership representative designated on the 
partnership return.
    The purpose of the quoted language was to describe how to determine 
whether a person was a general partner at the close of the taxable 
year, that is, by looking to the partnership return for that taxable 
year. It was not intended to describe what type of partnership 
representative designation can be revoked by the partnership. A 
partnership can revoke any designation of a partnership representative, 
including a designation made by the IRS, provided permission is granted 
by the IRS. See Sec.  301.6223-1(e)(6). Sections 301.6223-1(e)(1) and 
(e)(4) have been revised to clarify this point.
    The comment also suggested that any partner of the partnership, 
instead of only a general partner, should be able to sign a revocation 
provided that partner certifies the partner has the authority to do so. 
This comment was adopted in the final regulations. The final 
regulations allow any partner who was a partner during the partnership 
taxable year to which the revocation relates, not just a general 
partner, to sign a revocation. Allowing any partner for the taxable 
year to which the revocation relates to sign the revocation provides 
maximum flexibility to the partnership to determine which partners 
should have that authority.
    The rules under proposed Sec.  301.6223-1(e)(3)(ii) made clear that 
for purposes of determining who may sign a revocation for a limited 
liability company (LLC), a member-manager is treated as a general 
partner and any other member is treated as a non-general partner. These 
rules were necessary to clarify in the context of LLCs which members 
can sign a revocation. As discussed above in this section of the 
preamble, however, the proposed regulations have been revised to permit 
any partner during the taxable year to which the revocation relates, 
not just a general partner, to sign a revocation. Therefore, Sec.  
301.6223-1(e)(3)(ii) has been removed from the regulations because the 
rule equating member-managers with general partners is no longer 
necessary.
    The comment also recommended that the ``catch-all'' provision under 
proposed Sec.  301.6223-1(b)(4)(vi) (regarding capacity to act) also 
apply in determining whether partners other than a general partner can 
sign a revocation. Proposed Sec.  301.6223-1(b)(4) has been removed 
from the final regulations and is no longer referenced in Sec.  
301.6223-1(e); therefore, this comment was not adopted. The references 
to capacity to act were necessary when only certain partners could 
revoke the designation. Because the regulations have been revised to 
allow any partner for the partnership taxable year to which the 
revocation relates to sign the revocation, there is no need to describe 
situations in which general partners do not have the capacity to act 
and no need for the associated catch-all provision.
    Lastly, the comment recommended that the regulations explicitly 
provide that a partnership can revoke a partnership representative 
designation for any reason. As discussed in section 2.C. of this 
preamble, nothing in the regulations requires the partnership to have a 
specific reason, or any reason at all, for a revocation. However, this 
comment was adopted to clarify that neither a revocation nor a 
resignation requires any particular reason. The final regulations also 
clarify that a revocation may occur regardless of when and how the 
designation was made, except with respect to a designation made by the 
IRS. See Sec.  301.6223-1(e)(6).
    Proposed Sec.  301.6223-1(e)(3)(ii) applied the rules for signing a 
revocation to LLCs and provided that for purposes of the proposed 
regulations the term LLC means an organization that, among other 
things, ``is classified as a partnership for Federal tax purposes.'' A 
comment recommended that the phrase ``is classified as a partnership 
for Federal tax purposes'' be removed from the definition of LLC 
because the quoted language creates confusion about whether the LLC has 
to be currently classified as a partnership for the proposed rules 
regarding revocation to apply. As discussed in this section of the 
preamble, Sec.  301.6223-1(e)(3)(ii) has been removed from the 
regulations because the paragraph is no longer necessary in light of 
the changes to the revocation process.
    While considering these comments, the Treasury Department and the 
IRS had the opportunity to reevaluate the portion of the rule in 
proposed Sec.  301.6223-1(e)(3) that required a person revoking a 
designation to be a partner at the close of the taxable year

[[Page 39338]]

and determined that this rule is unnecessarily restrictive. This is 
because being a partner on the last day of the taxable year is not 
meaningful so long as the person is a partner during the taxable year. 
For instance, a person who is a partner on the last day of the taxable 
year could be a partner with a small interest in the partnership or 
could have acquired their interest in the partnership on the next to 
last day of the partnership taxable year, whereas a person who is a 
partner during the year but not on the last day of the year could have 
owned a very large interest in the partnership or could have been a 
partner for all days during the year, except the last day.
    Further, while the partnership return identifies partners during 
the taxable year, it is not readily apparent from the face of the 
return or the Schedules K-1 who was a partner on the last day of the 
partnership taxable year. Therefore, the IRS could not easily determine 
if the partner signing the revocation was a partner on the last day of 
the taxable year.
    Finally, there may be more partner turnover during a partnership's 
taxable year as a result of fewer partnership short taxable years after 
the repeal of technical terminations under section under 708(b)(1). See 
section 13504 of ``[a]n Act to provide for reconciliation pursuant to 
titles II and V of the concurrent resolution on the budget for fiscal 
year 2018,'' Public Law 115-97. Generally, under a technical 
termination under section 708(b)(1)(B), when 50 percent or more of a 
partnership's capital and profits are sold or exchanged during any 12 
month period, the partnership taxable year ended, causing a short 
partnership taxable year. However, after repeal of the technical 
termination rule, there can be significant partner turnover during a 
partnership's full taxable year without resulting in an early close of 
the partnership taxable year. Thus, partners who dispose of their 
partnership interest, and who would have been partners for a full 
taxable year at the close of a short partnership taxable year when 
there was a technical termination, are now partners for only part of a 
full 12 month partnership taxable year.
    Accordingly, the final regulations have been revised to allow any 
person who was a partner at any time during the taxable year to which 
the revocation relates to sign the revocation. The final regulations 
were also revised to provide that the Treasury Department and the IRS 
may in the future provide forms, instructions, or other guidance that 
would allow the partnership to revoke the designation of a partnership 
representative if there are no reviewed year partners (as defined in 
proposed Sec.  301.6241-1(a)(9)) at the time of revocation.
    One comment also suggested that a partnership should be able to 
revoke an appointment of a designated individual without first revoking 
the entity partnership representative designation. This comment was 
adopted in Sec.  301.6223-1(e). However, to ensure that the IRS has a 
contact point for the partnership, the regulations under Sec.  
301.6223-1(e)(1) have also been revised to provide that if a 
partnership revokes the appointment of a designated individual and not 
the entity partnership representative, the partnership must appoint a 
successor designated individual at the same time of the revocation. 
Similar to the rules under the regulations with respect to the 
partnership representative resignation, failure to follow the rules of 
Sec.  301.6223-1(e), including failure to appoint a successor 
designated individual, results in an invalid revocation of the 
designated individual.
iv. Effective Date of a Resignation or Revocation
    The proposed regulations provided that a resignation or revocation 
of the partnership representative (or designated individual, if 
applicable) is effective 30 days from the date on which the IRS 
receives written notification of the resignation or the revocation. See 
proposed Sec.  301.6223-1(d)(1), (e)(1). One comment recommended that 
the IRS refrain from requiring time-sensitive actions or responses from 
the partnership during this 30-day period. Another comment recommended 
that a resignation or revocation of a partnership representative be 
immediately effective in certain situations, including when the 
partnership representative is the subject of a court order determining 
the partnership representative is incompetent or enjoining the 
partnership representative from serving as the partnership 
representative, the partnership representative is incarcerated, the 
partnership representative has become the subject of a criminal tax 
investigation, the partnership representative has been convicted of a 
felony or of a crime that involves dishonesty or breach of trust, or 
the partnership representative has become the subject of bankruptcy or 
receivership proceedings.
    In response to these comments, Sec.  301.6223-1(d) and (e) are 
revised to provide that generally a partnership representative 
resignation or revocation is effective immediately upon receipt by the 
IRS. In cases where there is a revocation of a partnership 
representative designated by the IRS, the final regulations provide 
that the revocation is effective on the date the IRS sends notification 
that it determined that the revocation is valid.
    The comment requesting that the revocation or resignation be 
immediately effective on the date it is signed or sent was not adopted. 
Until it is received by the IRS, the IRS cannot be aware of a 
revocation or resignation to give it effect. Before the revocation or 
resignation is received, the IRS will continue to work with the person 
designated to represent the partnership as the partnership 
representative. Nothing in the regulations prevents a partnership or 
partnership representative from providing a revocation or resignation 
directly to the IRS employee handling the administrative proceeding to 
ensure that the IRS has received prompt notification of the change.
    Proposed Sec.  301.6223-1(d)(1) and (e)(1) provided that the IRS 
will notify the partnership and other affected persons (the resigning 
partnership representative or designated individual or the partnership 
representative (and designated individual, if applicable) whose status 
is being revoked) when the IRS receives a resignation or revocation. To 
provide assurance that the IRS has received and processed a resignation 
or revocation, these sections of the final regulations have been 
revised to provide that, no later than 30 days after receipt of a valid 
notification of a revocation or resignation, the IRS will notify the 
partnership and the resigning partnership representative or designated 
individual or the partnership representative (and designated 
individual, if applicable) whose status is being revoked of its 
acceptance.
    Proposed Sec.  301.6223-1(e)(4) provided that a partnership cannot 
revoke the designation of a partnership representative designated by 
the IRS unless the partnership receives permission from the IRS. The 
final regulations under Sec.  301.6223-1(e)(6) are clarified to provide 
that the IRS will not unreasonably withhold such permission. To avoid 
confusion, Sec.  301.6223-1(e)(3) and (6) have been revised to provide 
that when permission is granted, the IRS will send the notification 
described in paragraph Sec.  301.6223-1(e)(1). The effective date of 
the revocation is the date of that notification, which, if the IRS is 
granting permission for the revocation of the IRS-designated 
partnership representative, will be sent no later than 30 days after 
receipt of the revocation.

[[Page 39339]]

v. Notification of Change
    Proposed Sec.  301.6223-1(d)(1) provided that a resigning 
partnership representative must notify the partnership and the IRS of 
the resignation, and proposed Sec.  301.6223-1(e)(1) provided that when 
a partnership revokes a partnership representative designation, the 
partnership must notify the partnership representative and the IRS. 
Proposed Sec.  301.6223-1(e)(3)(iii)(A)(2) required a notification of 
revocation to include a certification from the partner signing the 
revocation that the person has provided a copy of the revocation to the 
partnership and to the partnership representative whose designation is 
being revoked. Failure to include that certification rendered the 
revocation invalid. One comment recommended clarification on how this 
certification should be made when the partnership representative is 
deceased or dissolved or the partnership is no longer in contact with 
the partnership representative. The comment suggested that sending the 
copy of the revocation to the last known address should be sufficient. 
The comment also suggested that the regulations clarify whether there 
are any other restrictions on the method of notifying the partnership 
representative, such as proof of delivery or electronic delivery.
    State law and any contractual arrangement between the parties 
generally control the terms of the relationship between the partnership 
and the partnership representative. Except as necessary to carry out 
the statute, the regulations implementing the centralized partnership 
audit regime attempt not to impose requirements with respect to 
interactions between the partnership and the partnership 
representative. The requirements in proposed Sec.  301.6223-1(d)(1) and 
(e)(1) that the partnership notify the partnership representative and 
that the partnership representative notify the partnership were not 
consistent with this approach. Therefore, the Treasury Department and 
the IRS believe that including these requirements would unnecessarily 
create regulatory burdens on partnerships and partnership 
representatives without any significant benefit to tax administration. 
Accordingly, the final regulations have been revised to remove these 
requirements. Consequently, a resigning partnership representative and 
a partnership making a revocation must now only notify the IRS of the 
change in designation. As long as they notify the IRS as required under 
the regulations, the partnership and the partnership representative may 
agree to other notification requirements and are in the best position 
to determine if such requirements are necessary.
    Another comment suggested that, in the case of an entity 
partnership representative, notification by the IRS of a revocation (as 
well as other notifications) should also be required to be sent to the 
designated individual. This comment was not adopted. In the case of a 
change to an entity partnership representative, the IRS will only send 
one notification and plans to adopt procedures under which such a 
notification will be sent to the partnership representative and 
addressed to the attention of the designated individual. This procedure 
should avoid the need to send duplicate notifications, which is 
burdensome for the IRS, while also allowing the partnership, the entity 
partnership representative, and the designated individual to arrange 
their affairs in a way to ensure that important notifications from the 
IRS are received by the appropriate persons.
    Proposed Sec.  301.6223-1(e)(1) required the IRS to notify the 
partnership and the affected partnership representative of a 
revocation. This requirement has been revised to provide that the IRS 
will only give notification of a revocation made after the issuance of 
a notice of selection for examination or a NAP. In contrast, the final 
regulations do not require the IRS to give notification of a revocation 
made simultaneously with an AAR. This change is warranted because in 
some cases, the IRS might accept an AAR as filed without further 
interaction with the partnership or communication with the partnership 
representative. Requiring the IRS to provide notification of a change 
in partnership representative when an AAR is filed is unnecessary 
unless the IRS selects the partnership for an examination as part of an 
administrative proceeding, in which case the partnership and the new 
partnership representative will receive a NAP, which is confirmation 
that the IRS received the change made on the AAR. The partnership can 
also confirm with the IRS at that time of receipt of the notice of 
selection for examination that the IRS received the change of 
partnership representative.
    In addition, the final regulations clarify that the failure of the 
IRS to send any notifications under Sec. Sec.  301.6223-1(d) and (e) to 
acknowledge receipt of a valid resignation or revocation does not 
invalidate the resignation or revocation. The notification provides the 
partnership with information about when the change in partnership 
representative became effective. However, the mere fact that a party 
does not receive an IRS notification does not mean that the resignation 
or revocation is not a valid change in partnership representative. A 
resignation or revocation that is valid under paragraph (d) or (e) of 
Sec.  301.6223-1 is valid regardless of whether the IRS sends 
notification of receipt.
C. IRS Designation of Partnership Representative
i. Determination That a Designation Is Not in Effect
    Proposed Sec.  301.6223-1(f) provided the IRS may determine a 
designation is not in effect under certain circumstances. Under 
proposed Sec.  301.6223-1(f)(1), if the IRS makes a determination that 
a designation is not in effect, the IRS will notify the partnership and 
``the most recent partnership representative for that partnership 
taxable year'' of that determination. One comment noted that there may 
be circumstances where there was never a partnership representative for 
the taxable year and recommended the regulations be clarified on this 
point. The comment describes an example where the partnership 
representative designated on the partnership return lacks substantial 
presence and concludes that there would be no partnership 
representative in that case.
    This conclusion is incorrect. A partnership representative 
designated under Sec.  301.6223-1 is in effect unless and until the IRS 
determines otherwise. See Sec.  301.6223-1(b)(1). Therefore, a person 
designated on a partnership return as the partnership representative is 
the partnership representative for that taxable year even if the person 
lacks substantial presence as defined in Sec.  301.6223-1(b)(2) unless 
and until the IRS makes a determination, in accordance with Sec.  
301.6223-1(f), that the designation is not in effect. Accordingly, 
prior to the issuance of a notification from the IRS under Sec.  
301.6223-1(f)(1) that the partnership representative designation is not 
in effect, the designation of the partnership representative on the 
partnership return is in effect, even if the person designated lacks 
substantial presence in the United States.
    Because a designated partnership representative is in effect unless 
and until the IRS determines otherwise, the vast majority of 
partnerships will have a partnership representative designation in 
effect because they will have designated the partnership representative 
on the return as required under Sec.  301.6223-1(c). As a result, in 
most cases there will be a partnership

[[Page 39340]]

representative to whom the notification must be sent. However, there 
may be situations in which the partnership failed to make a valid 
designation in accordance with Sec.  301.6223-1(c). To address these 
situations, the comment was adopted and Sec.  301.6223-1(f)(1) has been 
revised to clarify that the IRS is not required to notify the most 
recent partnership representative if the partnership failed to 
designate one.
    Another comment recommended that any determination that a 
designation is not in effect should not be made effective until a new 
partnership representative has been designated, either by the 
partnership or the IRS. This comment was not adopted. If there has been 
a determination that a partnership representative designation is not in 
effect for a taxable year, the IRS has determined that the partnership 
representative is no longer a valid partnership representative for 
purposes of conducting an administrative proceeding of that partnership 
with respect to that taxable year. To keep the designation in place 
would run counter to this determination and would hinder the 
partnership administrative proceeding. If, for example, the partnership 
representative no longer meets the substantial presence requirements 
under Sec.  301.6223-1(b) because the partnership representative has 
left the country and, as a result, is unreachable, neither the 
partnership nor the IRS benefits from having that partnership 
representative designation remain in place until a new partnership 
representative is designated. The best result for both the partnership 
and the IRS is for the partnership to designate a new partnership 
representative who can move the administrative proceeding forward, 
which the partnership will have the opportunity to do prior to the IRS 
designating one under the rules in Sec.  301.6223-1(f). Delaying the 
effective date of the determination that no partnership representative 
is in effect slows down the administrative proceeding, which does not 
benefit the partnership or the IRS.
    Proposed Sec.  301.6223-1(f)(2) provided a list of reasons why the 
IRS might determine that a partnership representative designation is 
not in effect. Proposed Sec.  301.6223-1(f)(2) provided that the IRS 
may determine a designation is not in effect when, among other 
circumstances, the IRS has received multiple revocations within a 90-
day period. See proposed Sec.  301.6223-1(e)(7). One comment suggested 
that the regulations should limit the discretion of the IRS to 
determine that a designation is not in effect under proposed Sec.  
301.6223-1(f)(2) to situations where the IRS determines the multiple 
revocations represent an effort to delay or obstruct the administrative 
proceeding.
    While there may be benign reasons for multiple revocations, the 
practical effect is the same regardless of the reason. The IRS's 
receipt of multiple revocations and designations will delay the 
administrative proceeding and prevent the IRS from effectively 
conducting an administrative proceeding. The administrative proceeding 
should not be delayed, intentionally or unintentionally, due to an 
inability to settle on a partnership representative.
    Additionally, requiring the IRS to determine if multiple 
revocations were due to inadvertence or a desire to delay or obstruct 
the administrative proceeding adds additional burden that would be 
costly for both the partnership and the IRS to resolve. It would also 
inevitably lead to disputes between the IRS and partnerships regarding 
factually intensive questions underlying the intent of revocations. Any 
time and resources devoted to discerning the purpose behind each 
revocation ultimately delays the entire administrative proceeding. 
There may be situations in which partners genuinely disagree as to who 
had authority to appoint the partnership representative or who the 
partnership representative should be. However, these disputes are best 
resolved by the partners themselves. The IRS should not be the arbiter 
of disputes between partners. Consequently, this comment has not been 
adopted.
    There may be circumstances, however, when multiple revocations are 
necessary due to circumstances outside of the partnership's control, 
such as death or serious health issues or due to a ministerial error. 
To accommodate these types of circumstances, the proposed regulations 
provided the IRS with the discretion to keep the partnership 
designation in effect even though multiple revocations were received 
within a 90-day period. The proposed regulations did not require the 
IRS to make a determination that the designation is no longer in 
effect, but rather provided the IRS with the ability to make such a 
determination when appropriate. In retaining this rule, the final 
regulations accommodate situations where multiple revocations are not 
the result of bad faith and the IRS determines that allowing such 
revocations does not interfere with the IRS's ability to conduct the 
administrative proceeding.
    Section 301.6223-1(f)(5) of the proposed regulations provided that 
the multiple-revocation rule was triggered if the IRS receives more 
than one revocation for the same partnership taxable year within a 90-
day period. The final regulations remove the language ``signed by 
different partners'' from that provision. The fact that multiple 
revocations are received within 90 days is all that is required for the 
IRS to exercise its discretion under Sec.  301.6223-1(f)(2). The number 
of partners involved is not relevant to whether multiple revocations 
are received and whether that could slow down the administrative 
proceeding. Accordingly, the regulations have been revised to make 
clear that the receipt of multiple revocations, not the receipt of 
multiple revocations signed by different partners, is what is required 
for the provision in Sec.  301.6223-1(f) to be satisfied.
    In addition, the rule in the proposed regulations allowing the 
partnership the option to appoint a partnership representative before 
one is designated by the IRS has been revised in the case of multiple 
revocations. The final regulations provide that if the IRS determines a 
designation is not in effect in the case of multiple revocations, the 
IRS will designate a partnership representative, and unlike the general 
rule for IRS designation of a partnership representative, the 
partnership will not be given 30 days to designate a partnership 
representative. The stricter rule in the case of multiple revocations 
is necessary because providing the partnership another opportunity to 
designate a partnership representative would only perpetuate the 
existing problem and may delay the administrative proceeding. The final 
regulations also make clear that the multiple revocations rule applies 
to multiple revocations of a designated individual as well. Although 
the IRS may designate a new partnership representative in the case of 
multiple revocations, like any other IRS designation of a partnership 
representative, the partnership may revoke that partnership 
representative designation with the consent of the IRS.
    In order to clarify the operation of the 90-day period under the 
multiple revocation rule, Sec.  301.6223-1(e)(7) was revised to provide 
that if the IRS receives a revocation (the current revocation), and, 
within the 90-day period prior to receiving the current revocation, the 
IRS had received another revocation for the same partnership taxable 
year, the IRS may determine that a designation is not in effect. This 
change clarifies that the multiple revocation rule may apply to any 
revocation received by the IRS. When the IRS receives a revocation, the 
IRS

[[Page 39341]]

may look back to the preceding 90 days and determine whether it had 
received a prior revocation for the same taxable year. If it had, the 
multiple revocation rule applies.
    A time limitation for the IRS to notify the partnership that the 
designation is not in effect was also added to the multiple revocation 
rule in Sec.  301.6223-1(e)(7)(ii). That time limitation provides that 
if the IRS plans to determine a designation is not in effect due to 
receipt of multiple revocations, the IRS must do so within 90 days of 
the receipt of the current revocation the IRS is considering. For 
example, assume the partnership files two revocations with respect to 
the same taxable year--one on May 31, 2019 and one on August 25, 2019. 
With respect to the August 25th revocation, the IRS received the May 
31st revocation within the 90-day period prior to August 25, 2019, 
meaning the multiple revocation rule under Sec.  301.6223-1(e)(7)(i) 
applies. Under the time limitation provided in Sec.  301.6223-
1(e)(7)(ii), the IRS would then have 90 days from August 25, 2019 to 
determine a designation is not in effect. If, during that 90-day period 
starting with August 25, 2019, the IRS received another revocation, the 
multiple revocation rule under Sec.  301.6223-1(e)(7)(i) would again be 
triggered, and pursuant to Sec.  301.6223-1(e)(7)(ii), the IRS would 
have another 90 days from that additional revocation to determine a 
designation is not in effect. The time limitation under Sec.  301.6223-
1(e)(7)(ii) provides certainty for the partnership and the IRS 
regarding when the IRS may determine that a designation is not in 
effect after multiple revocations have been filed.
    Another comment recommended that a partnership that makes a 
``technically faulty'' designation and receives notification from the 
IRS that no designation of a partnership representative is in effect 
should be given an opportunity to cure that designation before the IRS 
designates a new partnership representative. Nothing in the regulations 
prevents the IRS from providing the partnership with an opportunity to 
cure a defective designation prior to the IRS making its own 
designation. The IRS will provide additional guidance to its agents 
regarding designation of a partnership representative, and the IRS 
intends to generally recommend providing an opportunity to cure a 
defective designation. The IRS, however, may not allow for such an 
opportunity in all cases due to time restraints, multiple revocations, 
or the particular circumstances. Accordingly, this comment was not 
adopted. However, as the Treasury Department and the IRS develop more 
experience in this area, additional guidance may be issued.
    Proposed Sec.  301.6223-1(f)(2) has also been amended to add a new 
paragraph (vii), which provides that the IRS may determine that a 
designation is not in effect for any other reason described in 
published guidance. This paragraph was added to allow flexibility to 
add other circumstances that may require the IRS to determine the 
designation is not in effect as the Treasury Department and the IRS 
gain more experience with the centralized partnership audit regime.
    The final regulations also provide that the IRS is under no 
obligation to search for information about whether any of the 
circumstances listed in Sec.  301.6223-1(f)(2) exists. In addition, the 
final regulations clarify that even if the IRS has knowledge that one 
of the circumstances listed in Sec.  301.6223-1(f)(2) exists, the IRS 
is not required to determine that a designation is not in effect. This 
clarification was added for the reasons stated above in this section of 
the preamble. For instance, partners may have filed multiple 
revocations within 90 days, but if there was a valid reason for the 
multiple revocations, the IRS may not need to determine the partnership 
representative designation is not in effect.
ii. IRS Designation
    Numerous comments recommended changes to the rules under proposed 
Sec.  301.6223-1(f) governing IRS designation of a partnership 
representative when no designation is in effect. Several comments 
recommended that the regulations impose restrictions on whom the IRS 
may designate to serve as the partnership representative. Two comments 
suggested prohibiting the IRS from designating an IRS employee, agent, 
or contractor as the partnership representative. The Treasury 
Department and the IRS agree that an IRS employee, agent, or contractor 
who has no affiliation with the partnership subject to an 
administrative proceeding should not be designated as the partnership 
representative. An IRS employee, agent, or contractor may be a partner 
in the partnership subject to an administrative proceeding, however. 
Provided this interest in the partnership is unrelated to the 
individual's affiliation with the IRS, the individual's affiliation 
with the IRS should not preclude designation as the partnership 
representative. Accordingly, Sec.  301.6223-1(f)(5) was revised to 
provide that the IRS may not designate an IRS employee, agent, or 
contractor as the partnership representative unless the individual is a 
partner in the partnership subject to an administrative proceeding. 
Even if the IRS employee, agent, or contractor is a partner in such 
partnership, however, the IRS intends to avoid designating such an 
individual as the partnership representative if another suitable person 
is available.
    Several comments recommended that the IRS be required to select a 
current partner to serve as the partnership representative. Another 
comment recommended that the IRS be required to select the partner with 
the largest profits interest. Another comment requested that the 
regulations include an ordering rule (that is, the IRS selects a 
partner first; if no partner is available, an employee, etc.). Another 
comment recommended that where the partnership is in bankruptcy, the 
IRS should select the trustee to serve as the partnership 
representative.
    Imposing regulatory restrictions on whom the IRS can designate as 
the partnership representative could adversely affect the IRS's ability 
to select a suitable partnership representative, which harms both the 
IRS and the partnership. In some cases, a current partner might be the 
appropriate selection. In other cases, a former partner or an employee 
of the partnership might be more appropriate. For example, a current 
year partner might be more appropriate in a case where the current year 
partner is the person with access to the books and records of the 
partnership. However, a former partner has the advantage of being a 
partner from the year subject to an administrative proceeding and may 
be able to communicate with reviewed year partners more efficiently 
when seeking to modify the imputed underpayment. In the context of a 
partnership in bankruptcy, a non-member manager of the partnership, 
more familiar with the partnership's day-to-day business might be a 
more appropriate partnership representative than the bankruptcy trustee 
hired during the administrative proceeding. The Treasury Department and 
the IRS do not yet have experience with the new centralized partnership 
audit regime. As such, it would be unwise at this time to restrict whom 
the IRS may designate to be the partnership representative (other than 
as described earlier in this section). Consequently, comments 
recommending these types of restrictions were not adopted.
    One comment asked that the final regulations clarify that the IRS 
may select an entity partnership representative and that if it does so, 
the IRS must provide the partnership with the contact information of 
the designated individual. This comment

[[Page 39342]]

was adopted. Therefore, if the IRS does designate an entity to be the 
partnership representative, the IRS will also appoint a designated 
individual and provide the contact information of the designated 
individual to the partnership. See Sec.  301.6223-1(f)(5)(i).
    Proposed Sec.  301.6223-1(f)(5)(ii) provides a list of factors the 
IRS ``may'' consider when designating a partnership representative. A 
comment suggested that proposed Sec.  301.6223-1(f)(5)(ii) be revised 
to provide that the IRS ``will ordinarily'' consider ``one or more'' of 
those factors. The IRS intends to consider these factors when 
designating a partnership representative. Because the suggested 
language ``will ordinarily'' more accurately reflects the IRS's intent 
this comment has been adopted. However, the final regulations have also 
been revised to clarify that the IRS is not obligated to search for 
information about the factors to be considered and that IRS knowledge 
of any of the factors does not obligate the IRS to select a particular 
person as partnership representative. This clarification is 
particularly important in the case of a partnership that is 
nonresponsive because the IRS may not be able to consider certain 
factors where the partners are unreachable and certain information is 
not readily attainable. The IRS, therefore, will ordinarily consider 
these factors, but the IRS may not consider the factors in every case.
    The final regulations have also been revised to clarify that these 
factors are not the equivalent of requirements for eligibility to be 
designated by the IRS as a partnership representative. Only one factor 
may be applicable to the person designated as partnership 
representative and yet that person may be the one who is appropriate to 
designate based on who is available and willing to serve and the unique 
facts and circumstances of the partnership, the administrative 
proceeding, or other issues. Accordingly, Sec.  301.6223-1(f)(5)(ii) 
has been revised to clarify that the IRS will ordinarily consider one 
or more of the factors when determining whom to designate as 
partnership representative, no single factor is determinative, and a 
person may be designated by the IRS as partnership representative even 
if none of the factors is applicable.
    Several comments requested changes to the factors listed in 
proposed Sec.  301.6223-1(f)(5)(ii). One comment recommended that the 
IRS generally consider the profits interests of the partners. 
Considering the profits interest of a partner is reasonable because 
profits interest can in some circumstances directly affect how the 
results of an administrative proceeding will affect an individual 
partner. Additionally, because profits interest is a factor that can be 
determined from the face of the partnership return for most 
partnerships, consideration of a partner's profits interest when 
designating a partnership representative is administrable for the IRS. 
Therefore, Sec.  301.6223-1(f)(5)(ii) has been revised to adopt this 
comment.
    One comment suggested that the IRS should consider the person's 
involvement in the partnership's business in determining whether to 
designate that person as the partnership representative. The 
regulations already contain factors that consider the person's overall 
knowledge of the partnership and its books and records. These factors 
already incorporate consideration of the person's involvement in the 
partnership's business. Because the proposed factor duplicates those 
already included, this comment was not adopted.
    Several comments made suggestions with respect to the partnership's 
inability to revoke a partnership representative designation made by 
the IRS without having IRS consent of that revocation. One comment 
disagreed in general with this rule and recommended that the 
partnership be able to revoke a partnership designation made by the IRS 
without the consent of the IRS. Another comment stated that the 
partnership should be involved in the IRS's designation of a 
partnership representative. Another comment suggested that the 
partnership should be able to revoke a partnership representative 
designated by the IRS if there is a bona fide dispute over the capacity 
of the partnership representative designated by the IRS.
    The rule that the partnership must seek the IRS's permission before 
revoking an IRS-designated partnership representative is premised on 
the fact that the partnership has not properly designated a partnership 
representative on its own. If the IRS has to make a designation, the 
partnership has either failed to designate its own choice for 
partnership representative or has made multiple revocations.
    Allowing the partnership to unilaterally revoke a partnership 
representative that had been designated by the IRS undermines the 
purpose of the IRS designation. For an administrative proceeding to 
function properly and without delay and for the partnership to be 
represented in that administrative proceeding, a person who can act for 
the partnership and who is an eligible partnership representative must 
be designated. Additionally, because the IRS only designates a 
partnership representative when a partnership has failed to properly 
make its own designation, the partnership is ultimately in control over 
whether the IRS will need to designate a partnership representative. 
Consequently, the final regulations retain the rule that a partnership 
may revoke a partnership representative designated by the IRS only with 
the consent of the IRS, and the comments were not adopted.
D. Authority of the Partnership Representative
i. Binding Effect of Actions Taken by the Partnership Representative
    One comment suggested that, given that partnerships are formed 
under state law, state law should control the designation and authority 
of the partnership representative. Another comment suggested that the 
final regulations should clarify that the principles of agency law 
apply to the partnership representative, and that the partnership 
representative ``will be operating as the agent on behalf of the 
partnership subject to the same control by the partnership as any 
principal would have over an agent.'' These comments relate to proposed 
Sec.  301.6223-2(c), which provided that no state law, partnership 
agreement, or other document could limit the authority of the 
partnership representative. Because the authority of the partnership 
representative under federal law preempts any state law requirements 
these comments were not adopted. The language of Sec.  301.6223-2(d) 
(which corresponds with proposed Sec.  301.6223-2(c)) has been revised 
to clarify that this rule is applicable only with respect to the 
centralized partnership audit regime. Accordingly, the final 
regulations provide that the failure to adhere to state law 
requirements has no effect on actions taken by the partnership 
representative with respect to the centralized partnership regime.
    The regulations are drafted to provide significant flexibility to 
the partnership to determine who will represent it and for the 
partnership and the partnership representative to negotiate the terms 
of their relationship. The Treasury Department and the IRS have 
attempted to refrain from creating unnecessary regulatory burdens. The 
partnership and the partnership representative are free to enter into 
contractual agreements to define the scope and limits of their 
relationship. However, because the IRS is not a party to these 
agreements, it is not bound by them. Any remedy the partnership would 
have against the

[[Page 39343]]

partnership representative if the partnership representative failed to 
act in accordance with those agreements would be under state law with 
respect to the partnership representative.
    Section 301.6223-2(d) is not intended to prevent partnerships from 
taking advantage of state law remedies for partnerships who wish to 
restrict a partnership representative's authority under state law. 
Rather, the regulations leave the enforcement of such restrictions to 
the relevant parties, which simplifies the administrative proceeding 
consistent with the design of the centralized partnership audit regime. 
Under TEFRA, significant resources were often expended by the IRS and 
the partnership to determine what state law restrictions might affect 
who could act for the partnership and under what circumstances. The 
centralized partnership audit regime removes this aspect of TEFRA.
ii. Authority
    One comment recommended that where there is a question regarding a 
person's authority to serve as the partnership representative, the 
partnership should provide a notice signed by all the partners in the 
partnership as conclusive evidence that a particular person has the 
authority to serve as the partnership representative. This comment was 
not adopted because under section 6223 the authority of a person to act 
as partnership representative is based on whether the person was 
properly designated as the partnership representative in accordance 
with section 6223 and the regulations, not on whether state law or 
notice from the partners confirms such authority.
    One comment suggested that clarifying language be added to the end 
of a sentence in Sec.  301.6223-2(a) providing that a notice of final 
partnership adjustment is final when not contested by the partnership 
representative ``on behalf of the partnership.'' The Treasury 
Department and the IRS agree that as drafted Sec.  301.6223-2(a) was 
confusing. It is the partnership that contests the notice of final 
partnership adjustment, even if it does so through the partnership 
representative. Accordingly, the final regulations clarify this 
language by revising Sec.  301.6223-2(a) to remove the reference to the 
partnership representative.
E. Other Comments and Changes
    A comment recommended that proposed Sec.  301.6223-2 be clarified 
to provide that a partnership representative may engage a person to act 
on behalf of the partnership representative under a power of attorney 
during the administrative proceeding (referred to as a ``POA'') and 
that the POA can participate in meetings or receive copies of 
correspondence. Nothing in the regulations prevents the partnership 
representative from engaging a POA for this purpose. Language has been 
added to Sec.  301.6223-2(d) to clarify this issue. Language has also 
been added to Sec.  301.6223-1(a) to clarify that appointment of a POA 
does not designate the POA as partnership representative.
    A new paragraph (c) has been added to the final regulations to 
address the effect of withdrawal of a NAP on actions taken by a 
partnership representative. Proposed Sec.  301.6231-1(f) (December 19 
NPRM) allows the IRS to withdraw a NAP after it has been issued. 
Proposed Sec.  301.6231-1(f) further provides that the withdrawn NAP 
has no effect for purposes of the centralized partnership audit regime.
    The partnership representative may have taken actions before 
withdrawal of the NAP. In addition, after the NAP has been issued, but 
before the NAP has been withdrawn, the partnership representative may 
have changed. Section 301.6223-2(c) has been added to the final 
regulations to clarify that even though the withdrawn NAP has no 
effect, any actions taken by a partnership representative (or successor 
partnership representative after a change in partnership representative 
that occurred after the issuance of the NAP and before the NAP was 
withdrawn) are binding on the partnership, even though the NAP has been 
withdrawn. An example was also added to illustrate this clarification 
under Sec.  301.6223-2(c) regarding withdrawal of the NAP. See Sec.  
301.6223-2(e), Example 6. As a result of this new paragraph (c), 
proposed Sec.  301.6223-2(c) was moved to Sec.  301.6223-2(d).
    One comment suggested that a partnership representative should have 
to affirm that he or she will serve as the partnership representative 
by checking a box on the partnership return where the designation is 
made. The comment suggested that having such an affirmation will save 
time at the beginning of the administrative proceeding.
    Adopting this comment would not save time at the beginning of the 
administrative proceeding because even if the box was checked by the 
partnership representative at the time the return is filed, by the time 
the IRS commences the administrative proceeding, the partnership 
representative may no longer be available or willing to serve. 
Similarly, a partnership representative might erroneously not check the 
box at the time the return is filed but be willing to serve at the time 
the administrative proceeding commences. Whether the partnership 
representative checked the box at one point in time is not the right 
proxy for whether the partnership representative is willing to serve as 
the partnership representative at some other point in time. Rather than 
add this unnecessary requirement, the regulations provide that the 
person designated as the partnership representative is the partnership 
representative until there is a resignation, revocation, or the IRS 
determines no designation is in effect. Once the administrative 
proceeding begins, an unwilling partnership representative may resign 
or the partnership may revoke the partnership representative and 
designate a successor. Accordingly, this comment was not adopted.
    One comment suggested that the partnership representative be 
required to notify partners of significant developments (for example, 
extensions of the period of limitations, settlements, petitioning a 
court, etc.). There is no requirement in the statute for the 
partnership representative to notify any partner of significant 
developments. This is a departure from TEFRA, which required certain 
notifications and provided participation rights for certain partners. 
The proposed regulations adhered to the legislative judgment that the 
partnership representative is the sole representative of the 
partnership, and the actions of the partnership representative bind the 
partners. Nothing in the proposed regulations prevents the partnership 
from contracting with the partnership representative to require the 
partnership representative to notify the partnership or the partners of 
any developments, significant or otherwise.
    The Treasury Department and the IRS have determined that the 
government should not mandate how and when the partnership 
representative communicates with partners or other persons. By 
remaining silent on this issue, the regulations allow a partnership, 
its partners, and the partnership representative to arrange their own 
affairs without unnecessary regulatory requirements that interfere with 
these relationships. Accordingly, this comment was not adopted.
    Proposed Sec.  1.6223-1(a) provided that a partnership 
representative must update the partnership representative's contact 
information when such information changes as required by

[[Page 39344]]

forms, instructions, and other guidance prescribed by the IRS. One 
comment requested that a partnership representative only be required to 
update its contact information upon the selection of the partnership 
for an examination or the filing of an AAR. At this time, there is no 
requirement that the partnership representative update contact 
information prior to selection for examination or the filing of an AAR. 
Experience with the new regime may inform the Treasury Department and 
the IRS that updating contact information prior to selection for an 
examination or filing an AAR is helpful or important. The final 
regulations have been clarified to provide that contact information 
must be updated if required by forms, instructions, or other guidance 
published by the IRS.

2. Election Into Centralized Partnership Audit Regime

    The Treasury Department and the IRS received no comments with 
respect to proposed Sec.  301.9100-22 and made no substantive revisions 
to the proposed regulations. Accordingly, the final regulations adopt 
the proposed regulations without any substantive change. Minor 
editorial changes were made. The temporary regulations are removed.

Special Analyses

    This regulation is not subject to review under section 6(b) of 
Executive Order 12866 pursuant to the Memorandum of Agreement (April 
11, 2018) between the Department of the Treasury and the Office of 
Management and Budget regarding review of tax regulations. Therefore, a 
regulatory impact assessment is not required.
    It is hereby certified that these rules will not have a significant 
economic impact on a substantial number of small entities. Although 
these rules may affect a substantial number of small entities, the 
economic impact is not substantial because these rules merely provide 
clarifying guidance on the statutory requirements to designate a 
partnership representative. These rules reduce the existing burden on 
partnerships to comply with the statutory requirements by providing 
clear rules and guidance regarding the statutory requirements for 
partnerships required to designate a partnership representative under 
section 6223 and for partnerships to make an election for the 
centralized partnership audit regime to apply to taxable years 
beginning after November 2, 2015 and before January 1, 2018. For the 
reasons stated, the final rules will not have a significant economic 
impact on a substantial number of small entities. Accordingly, a 
regulatory flexibility analysis under the Regulatory Flexibility Act (5 
U.S.C. Chapter 6) is not required.
    Pursuant to section 7805(f) of the Code, the notice of proposed 
rulemaking preceding these regulations was submitted to the Chief 
Counsel for Advocacy of the Small Business Administration for comment 
on its impact on small business, and no comments were received.

Statement of Availability of IRS Documents

    IRS Revenue Procedures, Revenue Rulings, Notices and other guidance 
cited in this preamble are published in the Internal Revenue Bulletin 
(or Cumulative Bulletin) and are available from the Superintendent of 
Documents, U.S. Government Publishing Office, Washington, DC 20402, or 
by visiting the IRS website at www.irs.gov.

Drafting Information

    The principal authors of these final regulations are Joy E. Gerdy 
Zogby of the Office of the Associate Chief Counsel (Procedure and 
Administration) and Jennifer M. Black of the Office of the Associate 
Chief Counsel (Procedure and Administration). However, other personnel 
from the Treasury Department and the IRS participated in their 
development.

List of Subjects in 26 CFR Part 301

    Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income 
taxes, Penalties, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR part 301 is amended as follows:

PART 301--PROCEDURE AND ADMINISTRATION

0
Paragraph 1. The authority citation for part 301 continues to read in 
part as follows:

    Authority:  26 U.S.C. 7805 * * *.


0
Par. 2. Section 301.6223-1 is added to read as follows:


Sec.  301.6223-1  Partnership representative.

    (a) Each partnership must have a partnership representative. A 
partnership subject to subchapter C of chapter 63 of the Internal 
Revenue Code (subchapter C of chapter 63) for a partnership taxable 
year must designate a partnership representative for the partnership 
taxable year in accordance with this section. There may be only one 
designated partnership representative for a partnership taxable year at 
any time. The designation of a partnership representative for a 
partnership taxable year under this section remains in effect until the 
date on which the designation of the partnership representative is 
terminated by valid resignation (as described in paragraph (d) of this 
section), valid revocation (as described in paragraph (e) of this 
section), or a determination by the Internal Revenue Service (IRS) that 
the designation is not in effect (as described in paragraph (f) of this 
section). A designation of a partnership representative for a 
partnership taxable year under paragraphs (e) or (f) of this section 
supersedes all prior designations of a partnership representative for 
that year. If required by forms, instructions, and other guidance 
prescribed by the IRS, a partnership representative must update the 
partnership representative's contact information when such information 
changes. Only a person designated as a partnership representative in 
accordance with this section will be recognized as the partnership 
representative under section 6223. A power of attorney (including a 
Form 2848, Power of Attorney) may not be used to designate a 
partnership representative. See Sec.  301.6223-2(a), (b), and (c) with 
regard to the binding effect of actions taken by the partnership 
representative. See Sec.  301.6223-2(d) with regard to the sole 
authority of the partnership representative to act on behalf of the 
partnership. See paragraph (f) of this section for rules regarding 
designation of a partnership representative by the IRS.
    (b) Eligibility to serve as a partnership representative--(1) In 
general. Any person (as defined in section 7701(a)(1)) that meets the 
requirements of paragraphs (b)(2) and (3) of this section, as 
applicable, is eligible to serve as a partnership representative, 
including a wholly owned entity disregarded as separate from its owner 
for federal tax purposes. A person designated under this section as 
partnership representative is deemed to be eligible to serve as the 
partnership representative unless and until the IRS determines that the 
person is ineligible. A partnership can designate itself as its own 
partnership representative provided it meets the requirements of 
paragraphs (b)(2) and (3) of this section.
    (2) Substantial presence in the United States. A person must have 
substantial presence in the United States to be the partnership 
representative. A person has substantial presence in the United States 
for the purposes of this section if--

[[Page 39345]]

    (i) The person makes themselves available to meet in person with 
the IRS in the United States at a reasonable time and place as 
determined by the IRS in accordance with Sec.  301.7605-1; and
    (ii) The person has a United States taxpayer identification number, 
a street address that is in the United States and a telephone number 
with a United States area code.
    (3) Eligibility of an entity to be a partnership representative--
(i) In general. A person who is not an individual may be a partnership 
representative only if an individual who meets the requirements of 
paragraph (b)(2) of this section is appointed by the partnership as the 
sole individual through whom the partnership representative will act 
for all purposes under subchapter C of chapter 63. A partnership 
representative meeting the requirements of this paragraph (b)(3) is an 
entity partnership representative, and the individual through whom such 
entity partnership representative acts is the designated individual. 
Designated individual status automatically terminates on the date that 
the designation of the entity partnership representative for which the 
designated individual was appointed is no longer in effect in 
accordance with paragraph (d), (e), or (f) of this section.
    (ii) Appointment of a designated individual. A designated 
individual must be appointed by the partnership at the time of the 
designation of the entity partnership representative in the manner 
prescribed by the IRS in forms, instructions, and other guidance. 
Accordingly, if the entity partnership representative is designated on 
the partnership return for the taxable year in accordance with 
paragraph (c)(2) of this section, the designated individual must be 
appointed by the partnership at that time. Similarly, if the entity 
partnership representative is designated under paragraph (e) of this 
section (regarding revocation and subsequent designation after 
revocation of a partnership representative), the designated individual 
must be appointed at that time. If the partnership fails to appoint a 
designated individual at the time and in the manner set forth in this 
paragraph (b)(3)(ii), the IRS may determine that the entity partnership 
representative designation is not in effect under paragraph (f) of this 
section.
    (4) Examples. The following examples illustrate the rules of this 
paragraph (b).

    Example 1.  Partnership designates PR as its partnership 
representative for its 2018 tax year on its timely filed 2018 
partnership return. The IRS initiates an administrative proceeding 
with respect to Partnership's 2018 tax year. PR has a United States 
taxpayer identification number, a United States street address, and 
a phone number with a United States area code. The IRS contacts PR 
and requests an in-person meeting with respect to the administrative 
proceeding. PR works with the IRS and agrees to meet. PR has 
substantial presence in the United States because she meets all the 
requirements under paragraph (b)(2) of this section.
    Example 2.  The facts are the same as in Example 1 of this 
paragraph (b)(4), except that PR is an entity and Partnership 
appointed DI, a designated individual to act on behalf of PR for its 
2018 tax year on its timely filed 2018 partnership return. DI has a 
United States taxpayer identification number and a phone number with 
a United States area code. However, the address provided for DI is 
not a United States address. Accordingly, PR is not an eligible 
partnership representative because PR is an entity and DI does not 
satisfy the requirements of paragraph (b)(3)(i) of this section. 
Although DI does not have substantial presence in the United States 
under paragraph (b)(2) of this section and therefore PR is not an 
eligible partnership representative, until there is a resignation or 
revocation under paragraph (d) or (e) of this section or until the 
IRS determines the partnership representative designation is no 
longer in effect under paragraph (f) of this section, the 
designation of PR as the partnership representative remains in 
effect in accordance with paragraph (a) of this section, and 
Partnership and all its partners are bound by the actions of PR as 
the partnership representative.
    Example 3.  The facts are the same as in Example 1 of this 
paragraph (b)(4), except PR works in a foreign country and spends 
the majority of her time there. Unless PR otherwise fails to meet 
one of the requirements under paragraph (b)(2) of this section, PR 
has substantial presence in the United States. However, even if PR 
fails to meet one of the requirements under paragraph (b)(2) of this 
section, until there is a resignation or revocation under paragraph 
(d) or (e) of this section or until the IRS determines the 
partnership representative designation is no longer in effect under 
paragraph (f) of this section, the designation of PR as the 
partnership representative remains in effect in accordance with 
paragraph (a) of this section, and Partnership and all its partners 
are bound by the actions of PR as the partnership representative.

    (c) Designation of partnership representative by the partnership--
(1) In general. The partnership must designate a partnership 
representative separately for each taxable year. The designation of a 
partnership representative for one taxable year is effective only for 
the taxable year for which it is made.
    (2) Designation. Except in the case of a designation of a 
partnership representative (and the appointment of the designated 
individual, if applicable) after an event described in paragraph (d) of 
this section (regarding resignation), paragraph (e) of this section 
(regarding revocation by the partnership), or paragraph (f) of this 
section (regarding designation made by the IRS), or except as 
prescribed in forms, instructions, and other guidance, designation of a 
partnership representative (and the appointment of the designated 
individual, if applicable) must be made on the partnership return for 
the partnership taxable year to which the designation relates and must 
include all of the information required by forms, instructions, and 
other guidance, including information about the designated individual 
if paragraph (b)(3) of this section applies. The designation of the 
partnership representative (and the appointment of the designated 
individual, if applicable) is effective on the date that the 
partnership return is filed.
    (3) Example. The following example illustrates the rules of this 
paragraph (c).

    Example.  Partnership properly designates PR1 as its partnership 
representative for taxable year 2018 on its 2018 partnership return. 
Partnership designates PR2 as its partnership representative for 
taxable year 2021 on its 2021 partnership return. In 2022, the IRS 
mails Partnership a notice of administrative proceeding under 
section 6231(a)(1) with respect to Partnership's 2018 taxable year. 
PR1 is the partnership representative for the 2018 partnership 
taxable year, notwithstanding the designation of PR2 as partnership 
representative for the 2021 partnership taxable year.

    (d) Resignations--(1) In general. A partnership representative or 
designated individual may resign as partnership representative or 
designated individual, as applicable, for a partnership taxable year 
for any reason by notifying the IRS in writing of the resignation in 
accordance with forms, instructions, and other guidance prescribed by 
the IRS. A resigning partnership representative may not designate a 
successor partnership representative. A resigning designated individual 
may not designate a successor designated individual or partnership 
representative. No later than 30 days after the IRS receives a written 
notification of resignation, the IRS will send written confirmation of 
receipt of the written notification to the partnership and the 
resigning partnership representative (to the attention of the 
designated individual if appropriate). A failure by the IRS to send any 
notification under this paragraph (d) does not invalidate a valid 
resignation made pursuant to this paragraph (d). A failure by the 
partnership representative (or designated individual, if the designated 
individual is the person resigning) to

[[Page 39346]]

satisfy the requirements of this paragraph (d) is treated as if there 
were no resignation, and the partnership representative designation 
(and designated individual appointment, if applicable) remains in 
effect until the designation (or appointment) is terminated by valid 
resignation (as described in this paragraph (d)), valid revocation by 
the partnership (as described in paragraph (e) of this section), or a 
determination by the IRS that the designation is not in effect (as 
described in paragraph (f) of this section). See Sec.  301.6223-2 for 
binding nature of actions taken by the partnership representative or 
designated individual on behalf of a partnership representative, if 
applicable, prior to resignation.
    (2) Time for resignation. A partnership representative or 
designated individual may submit the written notification of 
resignation described in paragraph (d)(1) of this section to the IRS 
only after the IRS issues a notice of administrative proceeding (NAP) 
under section 6231(a)(1) for the partnership taxable year for which the 
partnership representative designation is in effect or at such other 
time as prescribed by the IRS in forms, instructions, or other 
guidance. If the IRS withdraws the NAP pursuant to Sec.  301.6231-1(f), 
any valid resignation by the partnership representative or designated 
individual under this paragraph (d) prior to the withdrawal of the NAP 
remains in effect.
    (3) Effective date of resignation. A valid resignation is 
immediately effective upon the IRS's receipt of the written 
notification described in paragraph (d)(1) of this section. As of the 
effective date of the resignation--
    (i) The resigning partnership representative (and designated 
individual, if applicable) may not take any action on behalf of the 
partnership with respect to the partnership taxable year affected by 
the resignation;
    (ii) The partnership representative designation is no longer in 
effect with respect to the partnership taxable year affected by the 
resignation;
    (iii) In the case of a resigning entity partnership representative, 
the appointment of the designated individual is no longer in effect 
with respect to the partnership taxable year affected by the 
resignation; and
    (iv) In the case of a resigning designated individual, the 
designation of the entity partnership representative is no longer in 
effect with respect to the partnership taxable year affected by the 
resignation.
    (e) Revocations--(1) In general. A partnership may revoke a 
designation of a partnership representative or appointment of a 
designated individual for a partnership taxable year for any reason by 
notifying the IRS in writing of the revocation in accordance with 
forms, instructions, and other guidance prescribed by the IRS. The 
partnership may make such revocation regardless of when and how the 
designation or appointment was made, except as provided in paragraph 
(e)(6) of this section (regarding designation by the IRS). The 
revocation must include the designation of a successor partnership 
representative (and the appointment of a designated individual, if 
applicable). In the case of a revocation of only the designated 
individual appointment, the partnership must designate a successor 
designated individual. No later than 30 days after the IRS receives a 
written notification of revocation submitted at the time described in 
paragraph (e)(2) of this section, the IRS will send written 
confirmation of receipt of the written notification to the partnership, 
the revoked partnership representative or, in the case of a revocation 
of only the appointment of a designated individual, to the revoked 
designated individual, and to the newly designated partnership 
representative. In the case of a revocation of an entity partnership 
representative, the notification will be sent to the entity partnership 
representative, to the attention of the designated individual. A 
failure by the IRS to send any notification under this paragraph (e) 
does not invalidate a valid revocation made pursuant to this paragraph 
(e). A failure by the partnership to satisfy the requirements of this 
paragraph (e), including failure to designate a successor, is treated 
as if no revocation has occurred and the partnership representative 
designation (and designated individual appointment, if applicable) 
remains in effect until the designation (or appointment) is terminated 
either by valid resignation (as described in paragraph (d) of this 
section), valid revocation by the partnership (as described in this 
paragraph (e)), or determination by the IRS that the designation is not 
in effect (as described in paragraph (f) of this section). See Sec.  
301.6223-2 for binding nature of actions taken by the partnership 
representative or designated individual on behalf of a partnership 
representative, if applicable, prior to revocation.
    (2) Time for revocation--(i) Revocation during an administrative 
proceeding. Except as provided in paragraph (e)(2)(ii) of this section 
or in forms, instructions, or other guidance prescribed by the IRS, a 
partnership may revoke a designation of a partnership representative or 
appointment of a designated individual only after the IRS issues a 
notice of selection for examination or a NAP under section 6231(a)(1) 
for the partnership taxable year for which the designation or 
appointment is in effect. If the IRS withdraws the NAP pursuant to 
Sec.  301.6231-1(f), any valid revocation of a partnership 
representative designation or designated individual appointment under 
this paragraph (e) prior to the withdrawal of the NAP remains in 
effect.
    (ii) Revocation with an AAR. The partnership may revoke a 
designation of a partnership representative or appointment of a 
designated individual for the taxable year prior to receiving a notice 
of selection for examination or a NAP by filing a valid administrative 
adjustment request (AAR) in accordance with section 6227 for a 
partnership taxable year. A partnership may not use the form prescribed 
by the IRS for filing an AAR solely for the purpose of revoking a 
designation of a partnership representative or appointment of a 
designated individual. See Sec.  301.6227-1 for the rules regarding the 
time and manner of filing an AAR.
    (3) Effective date of revocation. Except as described in paragraph 
(e)(6)(ii) of this section (regarding the effective date of a 
revocation of a partnership representative designated by the IRS under 
paragraph (f)(5) of this section), a valid revocation is immediately 
effective upon the IRS's receipt of the written notification described 
in paragraph (e)(1) of this section. A revocation of a partnership 
representative designation and a designation of a new partnership 
representative (and appointment of a new designated individual, if 
applicable) is effective on the date the partnership files a valid AAR. 
Similarly, a revocation of a designated individual appointment and 
appointment of a new designated individual is effective on the date the 
partnership files a valid AAR. As of the effective date of the 
revocation--
    (i) The revoked partnership representative (and designated 
individual, if applicable) may not take any action on behalf of the 
partnership with respect to the partnership taxable year affected by 
the revocation;
    (ii) The designation of the revoked partnership representative is 
no longer in effect, and the successor partnership representative 
designation (and designated individual appointment, if applicable) is 
in effect with respect to

[[Page 39347]]

the partnership taxable year affected by the revocation;
    (iii) In the case of a revoked entity partnership representative, 
the appointment of the designated individual is no longer in effect 
with respect to the partnership taxable year affected by the 
revocation; and
    (iv) In the case of a revoked designated individual where the 
designation of the entity partnership representative has not been 
revoked, the revoked designated individual may not take any action on 
behalf of the partnership with respect to the partnership taxable year 
affected by the revocation, the appointment of the revoked designated 
individual is no longer in effect, and the appointment of the successor 
designated individual is in effect.
    (4) Partners who may sign revocation. A revocation under this 
paragraph (e) must be signed by a person who was a partner at any time 
during the partnership taxable year to which the revocation relates or 
as provided in forms, instructions, and other guidance prescribed by 
the IRS.
    (5) Form of the revocation. The written notification of revocation 
described in paragraph (e)(1) of this section must include the items 
described in this paragraph (e)(5). A notification of revocation 
described in paragraph (e)(1) of this section that does not include 
each of the following items is not a valid revocation:
    (i) A certification under penalties of perjury that the person 
signing the notification is a partner described in paragraph (e)(4) of 
this section authorized by the partnership to revoke the designation of 
the partnership representative (or appointment of the designated 
individual, if applicable).
    (ii) A statement that the person signing the notification is 
revoking the designation of the partnership representative (or 
appointment of the designated individual, if applicable);
    (iii) A designation of a successor partnership representative (and 
appointment of a designated individual, if applicable) in accordance 
with this section and forms, instructions, and other guidance 
prescribed by the IRS; and
    (iv) In the case of a revocation of an appointment of a designated 
individual, appointment of a successor designated individual in 
accordance with this section and forms, instructions, and other 
guidance prescribed by the IRS.
    (6) Partnership representative designated by the IRS--(i) In 
general. If a partnership representative is designated (and a 
designated individual is appointed, if applicable) by the IRS pursuant 
to paragraph (f)(5) of this section, the partnership may only revoke 
that designation (or the appointment of the designated individual, if 
applicable) with the permission of the IRS, which the IRS will not 
unreasonably withhold.
    (ii) Effective date of revocation. The effective date of any 
revocation submitted in accordance with paragraph (e)(6)(i) of this 
section is the date on which the IRS sends notification that the 
revocation is valid.
    (7) Multiple revocations--(i) In general. The IRS may determine 
that a designation is not in effect under paragraph (f) of this section 
if:
    (A) The IRS receives a revocation of a designation of a partnership 
representative or appointment of a designated individual, and
    (B) Within the 90-day period prior to the date the revocation 
described in paragraph (e)(7)(i)(A) of this section was received, the 
IRS received another revocation for the same partnership taxable year.
    (ii) Time limitation. The IRS may not determine that a designation 
is not in effect in accordance with paragraph (e)(7)(i) of this section 
later than 90 days after the IRS's receipt of the revocation described 
in paragraph (e)(7)(i)(A) of this section.
    (8) Examples. The following examples illustrate the rules of this 
paragraph (e).

    Example 1.  Partnership properly designates PR, an individual, 
as partnership representative for its 2018 taxable year on its 
timely filed 2018 partnership return. In 2020, Partnership mails 
written notification to the IRS to revoke designation of PR as its 
partnership representative for Partnership's 2018 taxable year. The 
revocation is not made in connection with an AAR for Partnership's 
2018 taxable year, and the IRS has not mailed Partnership a notice 
of selection for examination or a NAP under section 6231(a)(1) with 
respect to Partnership's 2018 taxable year. Because the revocation 
was not made when permitted under paragraph (e)(2) of this section, 
the revocation is not effective and B remains the partnership 
representative for Partnership's 2018 taxable year unless and until 
B's status as partnership representative is properly revoked under 
paragraph (e) of this section or terminated in accordance with 
paragraph (d) (regarding resignation) or (f) (regarding IRS 
designation) of this section.
    Example 2.  During an administrative proceeding with respect to 
Partnership's 2018 taxable year, Partnership provides the IRS with 
written notification to revoke its designation of PR, an individual, 
as its partnership representative for the 2018 taxable year. The 
written notification does not include a designation of a new 
partnership representative for Partnership's 2018 taxable year. 
Because the revocation does not include a designation of a new 
partnership representative as required under paragraph (e)(1) of 
this section, the revocation is not effective and PR remains the 
partnership representative for Partnership's 2018 taxable year 
unless and until B's status as partnership representative is 
properly revoked under paragraph (e) of this section or terminated 
in accordance with paragraph (d) (regarding resignation) or (f) 
(regarding IRS designation) of this section.

    (f) Designation of the partnership representative by the IRS--(1) 
In general. If the IRS determines that a designation of a partnership 
representative is not in effect for a partnership taxable year in 
accordance with paragraph (f)(2) of this section, the IRS will notify 
the partnership that a partnership representative designation is not in 
effect. The IRS will also notify the most recent partnership 
representative for the partnership taxable year, except as described in 
paragraph (f)(2)(iii) of this section. In the case of an entity 
partnership representative, the notification will be sent to the entity 
partnership representative, to the attention of the designated 
individual. The determination that a designation is not in effect is 
effective on the date the IRS mails the notification. Except as 
described in paragraph (f)(4) of this section, the partnership may 
designate, in accordance with paragraph (f)(3) of this section, a 
successor partnership representative (and designated individual, if 
applicable) eligible under paragraph (b) of this section within 30 days 
of the date the IRS mails the notification. In the case of a 
resignation of a partnership representative, this notification may 
include the written confirmation of receipt described in paragraph 
(d)(1) of this section. See paragraph (f)(2)(iv) of this section. If 
the partnership does not designate a successor within 30 days from the 
date of IRS notification, the IRS will designate a partnership 
representative in accordance with paragraph (f)(5) of this section. A 
partnership representative designation made in accordance with 
paragraphs (c), (e), or (f) of this section remains in effect until the 
IRS determines the designation is not in effect. See Sec.  301.6223-2 
for binding nature of actions taken by the partnership representative 
or designated individual on behalf of a partnership representative, if 
applicable, prior to a determination by the IRS that the designation is 
not in effect.
    (2) IRS determination that partnership representative designation 
not in effect. The IRS may, but is not required to, determine that a 
partnership representative designation is not in effect. The IRS is not 
obligated to search for or otherwise seek out information

[[Page 39348]]

related to the circumstances in which the IRS may determine a 
partnership representative designation is not in effect, and the fact 
that the IRS is aware of any such circumstances does not obligate the 
IRS to determine that a partnership representative designation is not 
in effect. The IRS may determine that the partnership representative 
designation is not in effect if the IRS determines that--
    (i) The partnership representative or the designated individual 
does not have substantial presence as described in paragraph (b)(2) of 
this section;
    (ii) The partnership failed to appoint a designated individual as 
described in paragraph (b)(3) of this section, as applicable;
    (iii) The partnership failed to make a valid designation as 
described in paragraph (c) of this section;
    (iv) The partnership representative or designated individual 
resigns as described in paragraph (d) of this section;
    (v) The partnership has made multiple revocations as described in 
paragraph (e)(7) of this section; or
    (vi) The partnership representative designation is no longer in 
effect as described in other published guidance.
    (3) Designation by the partnership during the 30-day period. 
Designation of a partnership representative (and appointment of a 
designated individual, if applicable) by the partnership during the 30-
day period described in paragraph (f)(1) of this section must be made 
in accordance with forms, instructions, and other guidance prescribed 
by the IRS. If the partnership fails to provide all information 
required by forms, instructions, and other guidance, the partnership 
will have failed to make a designation (and appointment, if 
applicable). If the partnership does not fully comply with the 
requirement of this paragraph (f)(3) within the 30-day period described 
in paragraph (f)(1) of this section, the IRS will designate a 
partnership representative (and appoint a designated individual, if 
applicable).
    (4) No opportunity for designation by the partnership in the case 
of multiple revocations. In the event that the IRS determines a 
partnership representative designation is not in effect due to multiple 
revocations as described in paragraph (e)(7) of this section, the 
partnership will not be given an opportunity to designate the successor 
partnership representative prior to the designation by the IRS as 
described in paragraph (f)(5) of this section. However, see paragraph 
(e)(6) of this section regarding revocation of a partnership 
representative designated by the IRS.
    (5) Designation by the IRS--(i) In general. The IRS designates a 
partnership representative under this paragraph (f)(5) by notifying the 
partnership of the name, address, and telephone number of the new 
partnership representative. If the IRS designates an entity partnership 
representative, the IRS will also appoint a designated individual to 
act on behalf of the entity partnership representative. The designation 
of a partnership representative (and appointment of a designated 
individual, if applicable) by the IRS is effective on the date on which 
the IRS mails the notification of the designation (and appointment, if 
applicable) to the partnership. The IRS will also mail a copy of the 
notification of the designation (and appointment, if applicable) to the 
new partnership representative (through the new designated individual, 
if applicable) that has been designated (and appointed, if applicable) 
by the IRS under this section.
    (ii) Factors considered when partnership representative designated 
by the IRS. The IRS will ordinarily consider one or more of the factors 
set forth in this paragraph (f)(5)(ii) when determining whom to 
designate as partnership representative. No single factor is 
determinative, and other than as described in paragraph (f)(5)(iii) of 
this section, the IRS may exercise its discretion to designate a person 
as partnership representative even if none of the factors are 
applicable to such person. The factors are not requirements for 
eligibility to be designated by the IRS as partnership representative; 
the only requirements for eligibility are described under paragraph (b) 
of this section. The IRS is not obligated to search for or otherwise 
seek out information related to the factors, and the fact that the IRS 
is aware of any information related to such factors does not obligate 
the IRS to designate a particular person. Although the IRS may 
designate any person to be the partnership representative, a principal 
consideration in determining whom to designate as a partnership 
representative is whether there is a reviewed year partner that is 
eligible to serve as the partnership representative in accordance with 
paragraph (b)(1) of this section or whether there is a partner at the 
time the partnership representative designation is made that is 
eligible to serve as the partnership representative. Other factors that 
will ordinarily be considered by the IRS in determining whom to 
designate as a partnership representative include, but are not limited 
to:
    (A) The views of the partners having a majority interest in the 
partnership regarding the designation;
    (B) The general knowledge of the person in tax matters and the 
administrative operation of the partnership;
    (C) The person's access to the books and records of the 
partnership;
    (D) Whether the person is a United States person (within the 
meaning of section 7701(a)(30)); and
    (E) The profits interest of the partner in the case of a partner.
    (iii) IRS employees. The IRS will not designate a current employee, 
agent, or contractor of the IRS as the partnership representative 
unless that employee, agent, or contractor was a reviewed year partner 
or is currently a partner in the partnership.
    (6) Examples. The following examples illustrate the rules of this 
paragraph (f).

    Example 1. The IRS determines that Partnership has designated a 
partnership representative that does not have substantial presence 
in the United States as defined in paragraph (b)(2) of this section. 
The IRS may, but is not required to, determine that the designation 
is not in effect and designate a new partnership representative 
after following the procedures in this paragraph (f).
    Example 2.  Partnership designates as its partnership 
representative a corporation but fails to appoint a designated 
individual to act on behalf of the corporation as required under 
paragraph (b)(3) of this section. The IRS may, but is not required 
to, determine that the partnership representative designation is not 
in effect and may designate a new partnership representative after 
following the procedures in this paragraph (f).
    Example 3.  The partnership representative resigns pursuant to 
paragraph (d) of this section. The IRS mails Partnership a 
notification informing Partnership that no designation is in effect 
and that the IRS plans to designate a new partnership 
representative. Partnership fails to respond within 30 days of the 
date the IRS mails the notification. The IRS must designate a 
partnership representative pursuant to this paragraph (f).
    Example 4.  Partnership designated on its partnership return a 
partnership representative, PR1. After Partnership received a NAP, 
Partnership submits to the IRS the form described in paragraph 
(e)(4) of this section requesting the revocation of PR1's 
designation as partnership representative and designating PR2 as the 
partnership representative. Sixty days later, Partnership signs and 
submits a form described in paragraph (e)(4) of this section 
requesting the revocation of PR2's designation as partnership 
representative and designating PR3 as the partnership 
representative. The IRS accepts the revocation of PR2 and 
designation of PR3 as

[[Page 39349]]

valid and effective upon receipt pursuant to paragraph (e)(3) of 
this section. However, because PR2's revocation was within 90 days 
of PR1's revocation, the IRS may determine within 90 days of IRS's 
receipt of PR2's revocation, pursuant to paragraphs (e)(7) and 
(f)(2) of this section, that there is no designation in effect due 
to multiple revocations. The IRS may then designate a new 
partnership representative pursuant to this paragraph (f) without 
allowing Partnership an opportunity to designate a partnership 
representative within the 30-day period described in paragraph 
(f)(1) of this section.

    (g) Reliance on forms required by this section. The IRS may rely on 
any form or other document filed or submitted under this section as 
evidence of the designation, resignation, or revocation on such form 
and as evidence of the date on which such form was filed or submitted 
relating to a designation, resignation, or revocation.
    (h) Applicability date--(1) In general. Except as provided in 
paragraph (h)(2) of this section, this section applies to partnership 
taxable years beginning after December 31, 2017.
    (2) Election under Sec.  301.9100-22 in effect. This section 
applies to any partnership taxable years beginning after November 2, 
2015 and before January 1, 2018 for which a valid election under Sec.  
301.9100-22 is in effect.

0
Par. 3. Section 301.6223-2 is added to read as follows:


Sec.  301.6223-2   Binding effect of actions of the partnership and 
partnership representative.

    (a) Binding nature of actions by partnership and final decision in 
a partnership proceeding. The actions of the partnership and the 
partnership representative taken under subchapter C of chapter 63 of 
the Internal Revenue Code (subchapter C of chapter 63) and any final 
decision in a proceeding brought under subchapter C of chapter 63 with 
respect to the partnership bind the partnership, all partners of the 
partnership (including partnership-partners as defined in Sec.  
301.6241-1(a)(7) that have a valid election under section 6221(b) in 
effect for any taxable year that ends with or within the taxable year 
of the partnership), and any other person whose tax liability is 
determined in whole or in part by taking into account directly or 
indirectly adjustments determined under subchapter C of chapter 63 (for 
example, indirect partners as defined in Sec.  301.6241-1(a)(4)). For 
instance, a settlement agreement entered into by the partnership 
representative on behalf of the partnership, a notice of final 
partnership adjustment (FPA) with respect to the partnership that is 
not contested by the partnership, or the final decision of a court with 
respect to the partnership if the FPA is contested, binds all persons 
described in the preceding sentence.
    (b) Actions by the partnership representative before termination of 
designation. A termination of the designation of a partnership 
representative because of a resignation under Sec.  301.6223-1(d) or a 
revocation under Sec.  301.6223-1(e), or as a result of a determination 
by the Internal Revenue Service (IRS) under Sec.  301.6223-1(f) that 
the designation is not in effect, does not affect the validity of any 
action taken by that partnership representative during the period prior 
to such termination. For example, if a partnership representative 
properly designated under Sec.  301.6223-1 consented to an extension of 
the period of limitations on making adjustments under section 6235(b) 
in accordance with Sec.  301.6235-1(d), that extension remains valid 
even after termination of the designation of that partnership 
representative.
    (c) Actions by the partnership representative upon withdrawal of 
notice of administrative proceeding. If the IRS issues a notice of 
administrative proceeding (NAP) under section 6231(a)(1) and 
subsequently withdraws such NAP pursuant to Sec.  301.6231-1(f), any 
actions taken by a partnership representative (or successor partnership 
representative after a change to the partnership representative that 
occurred after the issuance of the NAP and before the NAP was 
withdrawn) are binding as described in paragraph (a) of this section 
even though the NAP has been withdrawn and has no effect for purposes 
of subchapter C of chapter 63.
    (d) Partnership representative has the sole authority to act on 
behalf of the partnership--(1) In general. The partnership 
representative has the sole authority to act on behalf of the 
partnership for all purposes under subchapter C of chapter 63. In the 
case of an entity partnership representative, the designated individual 
has the sole authority to act on behalf of the partnership 
representative and the partnership. Except for a partner that is the 
partnership representative or the designated individual, no partner, or 
any other person, may participate in an administrative proceeding 
without the permission of the IRS. The failure of the partnership 
representative to follow any state law, partnership agreement, or other 
document or agreement has no effect on the authority of the partnership 
representative or the designated individual as described in section 
6223, Sec.  301.6223-1, and this section. Nothing in this section 
affects, or otherwise restricts, the ability of a partnership 
representative to authorize a person to represent the partnership 
representative, in the partnership representative's capacity as the 
partnership representative, before the IRS under a valid power of 
attorney in a proceeding involving the partnership under subchapter C 
of chapter 63.
    (2) Designation provides authority to bind the partnership--(i) 
Partnership representative. A partnership representative, by virtue of 
being designated under section 6223 and Sec.  301.6223-1, has the 
authority to bind the partnership for all purposes under subchapter C 
of chapter 63.
    (ii) Designated individual. A partnership that is required to 
appoint a designated individual described under Sec.  301.6223-
1(b)(3)(i) acts through such designated individual. By virtue of being 
appointed as part of the designation of the partnership representative 
under Sec.  301.6223-1, the designated individual has the sole 
authority to bind the partnership representative and therefore the 
partnership, its partners, and any other person as described in 
paragraph (a) of this section for all purposes under subchapter C of 
chapter 63 so long as the partnership representative designation and 
designated individual appointment are in effect.
    (e) Examples. The following examples illustrate the rules of this 
section.

    Example 1.  Partnership designates a partnership representative, 
PR, on its timely filed partnership return for 2020. PR is a partner 
in Partnership. The partnership agreement for Partnership includes a 
clause that requires PR to consult with an identified management 
group of partners in Partnership before taking any action with 
respect to an administrative proceeding before the IRS. The IRS 
initiates an administrative proceeding with respect to Partnership's 
2020 taxable year. During the course of the administrative 
proceeding, PR consents to an extension of the period of limitations 
on making adjustments under section 6235(b) allowing additional time 
for the IRS to mail an FPA. PR failed to consult with the management 
group of partners prior to agreeing to this extension of time. PR's 
consent provided to the IRS to extend the time period is valid and 
binding on Partnership because, pursuant to section 6223, PR, as the 
designated partnership representative, has authority to bind 
Partnership and all its partners.
    Example 2.  Partnership designates a partnership representative, 
PR, on its timely filed partnership return for 2020. PR is not a 
partner in Partnership. During an administrative proceeding with 
respect to Partnership's 2020 taxable year, PR agrees to certain 
partnership adjustments and within 45 days after the issuance of the 
FPA elects the alternative to payment of the imputed

[[Page 39350]]

underpayment under section 6226. Certain partners in Partnership 
challenge the actions taken by PR during the administrative 
proceeding and the validity of the section 6226 statements furnished 
to those partners, alleging that PR was never authorized to act on 
behalf of Partnership under state law or the partnership agreement. 
Because PR was designated by Partnership as the partnership 
representative under section 6223 and this section, PR was 
authorized to act on behalf of Partnership for all purposes under 
subchapter C of chapter 63, and the IRS may rely on that designation 
as conclusive evidence of PR's authority to act on behalf of 
Partnership.
    Example 3.  Partnership designates an entity partnership 
representative, EPR, and appoints an individual, A, as the 
designated individual on its timely filed partnership return for 
2020. EPR is a C corporation. A is unaffiliated with EPR and is not 
an officer, director, or employee of EPR. During an administrative 
proceeding with respect to Partnership's 2020 taxable year, A, 
acting for EPR, agrees to an extension of the period of limitations 
on making adjustments under section 6235(b) from March 15, 2024 to 
December 31, 2024. The IRS mails an FPA with respect to the 2020 
partnership taxable year on December 13, 2024, before expiration of 
the extended period of limitations on making adjustments as agreed 
to by EPR, but after the expiration of the unextended period of 
limitations on making adjustments. Partnership challenges the FPA as 
untimely, alleging that A was not authorized under state law to act 
on behalf of EPR and thus the extension agreement was invalid. 
Because A was appointed by the partnership as the designated 
individual to act on behalf of EPR, A was authorized to act on 
behalf of EPR for all purposes under subchapter C of chapter 63, and 
the IRS may rely on that appointment as conclusive evidence of A's 
authority to act on behalf of EPR and Partnership.
    Example 4.  The partnership representative, PR, consents to an 
extension of the period of limitations on making adjustments under 
section 6235(b) and Sec.  301.6235-1(d) for Partnership for the 
partnership taxable year. After signing the consent, PR resigns as 
partnership representative in accordance with Sec.  301.6223-1(d). 
The consent to extend the period of limitations on making 
adjustments under section 6235(b) remains valid even after PR 
resigns.
    Example 5.  Partnership designates a partnership representative 
who does not make themselves available to meet with the IRS in 
person in the United States as required by Sec.  301.6223-1(b). 
Although the partnership representative does not have substantial 
presence in the United States within the meaning of Sec.  301.6223-
1(b)(2), until a termination occurs under Sec.  301.6223-1(d) or (e) 
or the IRS determines the partnership representative designation is 
no longer in effect under Sec.  301.6223-1(f), the partnership 
representative designation remains in effect, and Partnership and 
all its partners are bound by the actions of the partnership 
representative.
    Example 6.  Partnership designates PR1 as the partnership 
representative on its timely filed partnership return for 2020. On 
September 1, 2022, the IRS sends a NAP for the 2020 taxable year to 
Partnership and PR, and Partnership revokes PR1's designation and 
designates PR2 as the partnership representative in accordance with 
Sec.  301.6223-1(e). On November 1, 2023, PR2 consents to an 
extension of the period of limitations on making adjustments under 
section 6235(b) and Sec.  301.6235(d) for Partnership's 2020 taxable 
year. On December 1, 2023, the IRS then withdraws the NAP. PR2 
remains the partnership representative, and the consent to extend 
the period of limitations on making adjustments under section 
6235(b) remains valid even after the NAP is withdrawn.

    (f) Applicability date--(1) In general. Except as provided in 
paragraph (f)(2) of this section, this section applies to partnership 
taxable years beginning after December 31, 2017.
    (2) Election under Sec.  301.9100-22 in effect. This section 
applies to any partnership taxable years beginning after November 2, 
2015 and before January 1, 2018 for which a valid election under Sec.  
301.9100-22 is in effect.

0
Par. 4. Section 301.9100-22 is added to read as follows:


Sec.  301.9100-22  Time, form, and manner of making the election under 
section 1101(g)(4) of the Bipartisan Budget Act of 2015 for returns 
filed for partnership taxable years beginning after November 2, 2015 
and before January 1, 2018.

    (a) Election. Pursuant to section 1101(g)(4) of the Bipartisan 
Budget Act of 2015, Public Law 114-74 (BBA), a partnership may elect at 
the time and in such form and manner as described in this section for 
amendments made by section 1101 of the BBA, except section 6221(b) as 
added by the BBA, to apply to any return of the partnership filed for 
an eligible taxable year as defined in paragraph (d) of this section. 
An election is valid only if made in accordance with this section. Once 
made, an election may only be revoked with the consent of the Internal 
Revenue Service (IRS). An election is not valid if it frustrates the 
purposes of section 1101 of the BBA. A partnership may not request an 
extension of time under Sec.  301.9100-3 for an election described in 
this section.
    (b) Election on notification by the IRS--(1) Time for making the 
election. Except as described in paragraph (c) of this section, an 
election under this section must be made within 30 days of the date of 
notification to a partnership, in writing, that a return of the 
partnership for an eligible taxable year has been selected for 
examination (a notice of selection for examination).
    (2) Form and manner of making the election--(i) In general. The 
partnership makes an election under this section by providing a written 
statement with the words ``Election under Section 1101(g)(4)'' written 
at the top that satisfies the requirements of paragraph (b)(2) of this 
section to the individual identified in the notice of selection for 
examination as the IRS contact regarding the examination.
    (ii) Statement requirements. A statement making an election under 
this section must be in writing and be dated and signed by the tax 
matters partner, as defined under section 6231(a)(7) (prior to 
amendment by the BBA), and the applicable regulations, or an individual 
who has the authority to sign the partnership return for the taxable 
year under section 6063, the regulations thereunder, and applicable 
forms and instructions. The fact that an individual dates and signs the 
statement making the election described in this paragraph (b) shall be 
prima facie evidence that the individual is authorized to make the 
election on behalf of the partnership. A statement making an election 
must include--
    (A) The partnership's name, taxpayer identification number, and the 
partnership taxable year for which the election described in this 
paragraph (b) is being made;
    (B) The name, taxpayer identification number, address, and daytime 
telephone number of the individual who signs the statement;
    (C) Language indicating that the partnership is electing 
application of section 1101(c) of the BBA for the partnership return 
for the eligible taxable year identified in the notice of selection for 
examination;
    (D) The information required to properly designate the partnership 
representative as defined by section 6223 as amended by the BBA, which 
must include the name, taxpayer identification number, address, and 
daytime telephone number of the partnership representative and any 
additional information required by applicable regulations, forms and 
instructions, and other guidance issued by the IRS;
    (E) The following representations--
    (1) The partnership is not insolvent and does not reasonably 
anticipate becoming insolvent before resolution of any adjustment with 
respect to the partnership taxable year for which the election 
described in this paragraph (b) is being made;
    (2) The partnership has not filed, and does not reasonably 
anticipate filing, voluntarily a petition for relief under title 11 of 
the United States Code;
    (3) The partnership is not subject to, and does not reasonably 
anticipate

[[Page 39351]]

becoming subject to, an involuntary petition for relief under title 11 
of the United States Code; and
    (4) The partnership has sufficient assets, and reasonably 
anticipates having sufficient assets, to pay a potential imputed 
underpayment with respect to the partnership taxable year that may be 
determined under subchapter C of chapter 63 of the Internal Revenue 
Code as amended by the BBA; and
    (F) A representation, signed under penalties of perjury, that the 
individual signing the statement is duly authorized to make the 
election described in this paragraph (b) and that, to the best of the 
individual's knowledge and belief, all of the information contained in 
the statement is true, correct, and complete.
    (iii) Notice of Administrative Proceeding. Upon receipt of the 
election described in this paragraph (b), the IRS will promptly mail a 
notice of administrative proceeding to the partnership and the 
partnership representative, as required under section 6231(a)(1) as 
amended by the BBA. Notwithstanding the preceding sentence, the IRS 
will not mail the notice of administrative proceeding before the date 
that is 30 days after receipt of the election described in paragraph 
(b) of this section.
    (c) Election for the purpose of filing an administrative adjustment 
request (AAR) under section 6227 as amended by the BBA--(1) In general. 
A partnership that has not been issued a notice of selection for 
examination as described in paragraph (b)(1) of this section may make 
an election with respect to a partnership return for an eligible 
taxable year for the purpose of filing an AAR under section 6227 as 
amended by the BBA. Once an election under this paragraph (c) is made, 
all of the amendments made by section 1101 of the BBA, except section 
6221(b) as added by the BBA, apply with respect to the partnership 
taxable year for which such election is made.
    (2) Time for making the election. No election under this paragraph 
(c) may be made before January 1, 2018.
    (3) Form and manner of making an election. An election under this 
paragraph (c) must be made in the manner prescribed by the IRS for that 
purpose in accordance with applicable regulations, forms and 
instructions, and other guidance issued by the IRS.
    (4) Effect of filing an AAR before January 1, 2018. Except in the 
case of an election made in accordance with paragraph (b) of this 
section, an AAR filed on behalf of a partnership before January 1, 
2018, is deemed for purposes of paragraph (d)(2) of this section, to be 
an AAR filed under section 6227(c) (prior to amendment by the BBA) or 
an amended return of partnership income, as applicable.
    (d) Eligible taxable year--(1) In general. For purposes of this 
section, the term eligible taxable year means any partnership taxable 
year beginning after November 2, 2015 and before January 1, 2018, 
except as provided in paragraph (d)(2) of this section.
    (2) Exception if AAR or amended return filed or deemed filed. 
Notwithstanding paragraph (d)(1) of this section, a partnership taxable 
year is not an eligible taxable year for purposes of this section if 
for the partnership taxable year--
    (i) The tax matters partner has filed an AAR under section 6227(c) 
(prior to amendment by the BBA),
    (ii) The partnership is deemed to have filed an AAR under section 
6227(c) (prior to the amendment by the BBA) in accordance with 
paragraph (c)(4) of this section, or
    (iii) An amended return of partnership income has been filed or has 
been deemed to be filed under paragraph (c)(4) of this section.
    (e) Applicability date. These regulations are applicable to returns 
filed for partnership taxable years beginning after November 2, 2015 
and before January 1, 2018.


Sec.  301.9100-22T   [Removed]

0
Par. 5. Section 301.9100-22T is removed.

Kirsten Wielobob,
Deputy Commissioner for Services and Enforcement.
    Approved: July 20, 2018.
David J. Kautter,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2018-17002 Filed 8-6-18; 4:15 pm]
 BILLING CODE 4830-01-P