[Federal Register Volume 63, Number 16 (Monday, January 26, 1998)]
[Proposed Rules]
[Pages 3677-3680]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-1529]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-209322-82]
RIN 1545-AU99
Return of Partnership Income
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Withdrawal of notice of proposed rulemaking; notice of proposed
rulemaking and notice of public hearing.
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SUMMARY: This document withdraws the notice of proposed rulemaking
relating to partnership returns. The proposed regulations were
published in the Federal Register on January 23, 1986. These
regulations revise the partnership filing requirement to reflect
changes to the law made by the Taxpayer Relief Act of 1997 (TRA). All
partnerships required to file partnership returns, including certain
foreign partnerships, are affected by these regulations. This document
also contains a notice of a public hearing on the proposed regulations.
DATES: Written comments must be received by April 27, 1998. Requests to
speak and outlines of oral comments to be discussed at the public
hearing scheduled for May 19, 1998, at 10 a.m. must be received by
April 28, 1998.
ADDRESSES: Send submissions to: CC:DOM:CORP:R (REG-209322-82), room
5226, Internal Revenue Service, POB 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may be hand delivered between the
hours of 8 a.m. and 5 p.m. to: CC:DOM:CORP:R (REG-209322-82), Courier's
Desk, Internal Revenue Service, 1111 Constitution Avenue NW.,
Washington, DC. Alternatively, taxpayers may submit comments
electronically via the Internet by selecting the ``Tax Regs'' option of
the IRS Home Page, or by submitting comments directly to the IRS
Internet site at: http://www.irs.ustreas.gov/prod/tax__regs/
comments.html. The public hearing will be held in the IRS Auditorium,
7400 Corridor, Internal Revenue Building, 1111 Constitution Avenue NW.,
Washington, DC.
FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Martin
Schaffer or Christopher Kelley, 202-622-3080; concerning foreign
partnerships, Ronald Gootzeit, 202-622-3860; concerning submissions and
the hearing, Michael Slaughter, 202-622-7190 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained in this notice of proposed
rulemaking has been submitted to the Office of Management and Budget
for review in accordance with the Paperwork Reduction Act of 1995 (44
U.S.C. 3507(d)). Comments on the collection of information should be
sent to the Office of Management and Budget, Attn: Desk Officer for the
Department of the Treasury, Office of Information and Regulatory
Affairs, Washington, DC, 20503, with copies to the Internal Revenue
Service, Attn: IRS Reports Clearance Officer, T:FP, Washington, DC
20224. Comments on the collection of information must be received by
March 27, 1998. Comments are specifically requested on:
Whether the proposed collection of information is necessary for the
proper performance of the functions of the Internal Revenue Service,
including whether the information will have practical utility;
The accuracy of the estimated burden associated with the proposed
collection of information (see below);
How the quality, utility, and clarity of the information to be
collected may be enhanced;
How the burden of complying with the proposed collection of
information may be minimized, including through the application of
automated collection techniques or other forms of information
technology; and
Estimates of the capital or start-up costs and costs of operation,
maintenance, and purchase of services to provide information.
The collection of information in this proposed regulation is in
Sec. 1.6031(a)-1. This information is required to enable the IRS to
verify that a taxpayer is reporting the correct amount of income or
gain or claiming the correct amount of losses, deductions, or credits
from that taxpayer's interest in the partnership. The collection of
information is mandatory. The likely respondents are businesses and
other for-profit institutions.
The burden is reflected in the burden of Form 1065.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless it displays a valid
control number assigned by the Office of Management and Budget.
Books or records relating to a collection of information must be
retained as long as their contents may become material in the
administration of any internal revenue law. Generally, tax returns and
tax return information are confidential, as required by 26 U.S.C. 6103.
Background
This document contains proposed amendments to the Income Tax
Regulations (26 CFR Part 1) under sections 6031 and 6063 of the
Internal Revenue Code of 1986 (Code). These amendments are designed, in
part, to reflect changes made to section 6031 by section 1141 of TRA,
Public Law 105-34, 111 Stat. 788 (1997). Section 6031 contains rules
regarding the filing of returns of partnership income (partnership
returns).
On January 23, 1986, the IRS published in the Federal Register (51
FR 3075) proposed regulations under section 6031 of the Internal
Revenue Code (existing proposed regulations). Section 1.6031-1 of the
existing proposed regulations provides rules that, if finalized, would
implement the partnership filing requirements of section 404 of the Tax
Equity and Fiscal Responsibility Act of 1982 (TEFRA), Public Law 97-
248, 96 Stat. 669 (1982). Because section 1141 of TRA supersedes the
partnership filing requirements of
[[Page 3678]]
section 404 of TEFRA, the IRS and Treasury consider it appropriate to
reissue proposed regulations reflecting recent changes to the law,
while giving taxpayers another opportunity to comment. Accordingly,
this document withdraws Sec. 1.6031-1 of the existing proposed
regulations published in the Federal Register on January 23, 1986 (51
FR 3075). A partnership that has followed the rules contained in
Sec. 1.6031-1 of the existing final regulations for all taxable years
prior to the taxable year for which these new regulations will become
effective will be treated as fully complying with the partnership
filing requirements with respect to such taxable years.
Section 6063 provides that a partnership return shall be signed by
any one of the partners. The proposed regulations clarify who must sign
a partnership return filed solely for the purpose of making certain
partnership-level elections.
Explanation of Provisions
Filing Requirement
Section 6031(a) requires every partnership to file a partnership
return. New section 6031(e), as added by section 1141 of TRA, exempts
certain foreign partnerships from the filing requirement of section
6031(a). Section 6031(e) provides that a foreign partnership is not
required to file a return for a tax year unless during that year it
derives gross income from sources within the United States or has gross
income that is effectively connected with the conduct of a trade or
business within the United States. Further exceptions to the filing
requirement for foreign partnerships may be provided by regulation.
The proposed regulations separately describe the filing
requirements for domestic and foreign partnerships. In accordance with
section 6031(a), the proposed regulations provide that, except in
certain limited circumstances, every domestic partnership must file a
partnership return.
Under section 6031 and the proposed regulations, a foreign
partnership generally must file a partnership return only if it has
either United States source income or income effectively connected (or
treated as effectively connected) with the conduct of a trade or
business within the United States. However, under the proposed
regulations, a foreign partnership that has no gross income that is
effectively connected with the conduct of a trade or business within
the United States, and that would be required to file a partnership
return only because it has gross income derived from sources within the
United States, will be exempt from the requirement to file a
partnership return if (i) no United States person has a direct or
indirect interest in the partnership; (ii) the gross income derived
from sources within the United States is either fixed or determinable
annual or periodical income described in Sec. 1.1441-2(b) or other
amounts subject to withholding described in Sec. 1.1441-2(c); (iii)
Forms 1042 and 1042-S are filed with respect to all such gross income
in accordance with Sec. 1.1461-1 (b) and (c); and (iv) the tax
liability of the partners with respect to such gross income has been
fully satisfied by the withholding of tax at the source, if applicable,
under chapter 3. The foreign partnership's obligation to file Forms
1042 and 1042-S is generally eliminated by the regulations under
section 1461 published in the Federal Register on October 14, 1997 (62
FR 53387) if those returns are filed by the withholding agent (or
agents) making the payments of United States source income to the
partnership and the partners' tax liability with respect to United
States source income has been fully satisfied by withholding. See
Sec. 1.1461-1 (b)(2) and (c)(4). The IRS and Treasury invite comments
addressing other ways to reduce duplicative information filing.
Any domestic or foreign partnership that elects to be excluded from
subchapter K of Chapter 1 of the Code under section 761(a) will not be
required to file a partnership return, except that where a partnership
makes an election under Sec. 1.761-2(b)(2)(i), the partnership must
timely file a partnership return that contains the information required
by Sec. 1.761-2(b)(2)(i) for the taxable year for which the election is
made.
Failure to Meet Filing Requirement
If a partnership that is not a small partnership under section
6231(a)(1)(B) is required to file a partnership return under section
6031 but fails to do so, the period of limitations on assessment of tax
attributable to items of that partnership remains open indefinitely
under section 6229(a). The failure of a partnership to file a return
required by section 6031 might also result in disallowance under
section 6231(f) of the deductions, losses, and credits flowing through
to the partners and could subject the partnership to penalties under
section 6698 and/or section 7203.
Information To Be Furnished to Partners
Under section 6031(b), every partnership that is required by
section 6031(a) to file a partnership return must furnish information
to its partners as required by regulations. The rules governing
partnership statements to partners and nominees are in Sec. 1.6031(b)-
1T.
Partnership Elections
A foreign partnership otherwise exempt from the filing requirement
that wants to make a partnership-level election under section 703(b)
must file a partnership return for the year of the election. The
proposed regulations provide rules similar to those contained in
Sec. 1.7701-3(c)(2) of the entity classification regulations with
respect to who has the authority to file such returns. Generally, the
return must be signed by all partners or by an authorized partner.
Proposed Effective Dates
These regulations are proposed to be applicable to partnership tax
years ending on or after the 90th day after final regulations on this
subject are published in the Federal Register. However, the exceptions
for certain foreign partnerships contained in Sec. 1.6031(a)-1(b)(2)
will not be applicable to any partnership taxable years beginning
before January 1, 1999.
Special Analyses
It has been determined that this notice of proposed rulemaking is
not a significant regulatory action as defined in EO 12866. Therefore,
a regulatory assessment is not required. It also has been determined
that section 553(b) of the Administrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these proposed regulations. It is hereby
certified that the collection of information contained in these
proposed regulations will not have a significant economic impact on a
substantial number of small entities. This certification is based on
the fact that the regulations would reduce (rather than increase) the
number of small entities that are required to file a partnership
return. Specifically, the proposed regulations would eliminate the
filing requirements for certain foreign partnerships that are fully
subject to withholding in order to prevent duplicative filing
requirements. In addition to eliminating the filing requirements in
these circumstances, for ease of reference the proposed regulations
update and restate the general requirements to file a partnership
return as set forth in existing regulations. Because the proposed
regulations would not impose any new reporting requirements that are
not imposed by the existing regulations,
[[Page 3679]]
and the only significant modification of the existing regulations is to
eliminate the filing requirement for certain foreign partnerships, the
regulations 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,
these proposed regulations will be submitted to the Chief Counsel for
Advocacy of the Small Business Administration for comment on their
impact on small business.
Comments and Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to any written comments (preferably a
signed original and eight (8) copies) that are submitted timely to the
IRS. All comments will be available for public inspection and copying.
A public hearing has been scheduled for Tuesday, May 19, 998, at 10
a.m., in the IRS Auditorium, 7400 Corridor, Internal Revenue Building,
1111 Constitution Avenue NW., Washington, DC. Because of access
restrictions, visitors will not be admitted beyond the building lobby
more than 15 minutes before the hearing starts.
The rules of 26 CFR 601.601(a)(3) apply to the hearing.
Persons that wish to present oral comments at the hearing must
submit written comments by April 27, 1998 and submit an outline of the
topics to be discussed and the time to be devoted to each topic (signed
original and eight (8) copies) by April 28, 1998.
A period of 10 minutes will be allotted to each person for making
comments.
An agenda showing the scheduling of the speakers will be prepared
after the deadline for receiving outlines has passed. Copies of the
agenda will be available free of charge at the hearing.
Drafting Information
The principal authors of these regulations are Martin Schaffer and
Christopher Kelley, Office of Assistant Chief Counsel (Passthroughs and
Special Industries), and Ronald Gootzeit, Office of the Associate Chief
Counsel (International). However, other personnel from the IRS and
Treasury Department participated in their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Withdrawal of Proposed Amendments to the Regulations
Accordingly, under the authority of 26 U.S.C. 7805, the notice of
proposed rulemaking that was published in the Federal Register on
January 23, 1986 (51 FR 3075) is withdrawn.
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 1 is proposed to be amended as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 is amended by adding
an entry in numerical order to read as follows:
Authority: 26 U.S.C. 7805. * * *
Section 1.6031(a)-1 also issued under 26 U.S.C. 6031. * * *
Sec. 1.6031-1 [Removed]
Par. 1a. Section 1.6031-1 is removed.
Par. 2. Section 1.6031(a)-1 is added to read as follows:
Sec. 1.6031(a)-1 Return of partnership income.
(a) Domestic partnerships--(1) Return required. Except as provided
in paragraphs (a)(3) and (c) of this section, every domestic
organization that is a partnership must file a return of partnership
income under section 6031 (partnership return) for each taxable year on
the form prescribed for the partnership return. The partnership return
must be filed for the taxable year of the partnership regardless of the
taxable years of the partners. For taxable years of a partnership and
of a partner, see section 706 and Sec. 1.706-1. For the rules governing
partnership statements to partners and nominees, see Sec. 1.6031(b)-1T.
(2) Content of return. The partnership return must contain the
information required by the prescribed form and the accompanying
instructions.
(3) Special rule. A partnership that has no income, deductions, or
credits for federal income tax purposes for a taxable year is not
required to file a partnership return for that year.
(4) Failure to file. For the consequences of a failure to comply
with the requirements of section 6031(a) and this paragraph (a), see
sections 6229(a), 6231(f), 6698, and 7203.
(b) Foreign partnerships--(1) Return required. A foreign
partnership must file a partnership return for a partnership taxable
year only if it has gross income derived from sources within the United
States or it has gross income that is (or is treated as) effectively
connected with the conduct of a trade or business within the United
States for the taxable year. Certain exceptions to this requirement are
provided in paragraphs (b)(2) and (c) of this section. A foreign
partnership that is required to file a partnership return must file the
partnership return in accordance with the rules provided for domestic
partnerships in paragraph (a) of this section.
(2) Exception to partnership return requirement for certain foreign
partnerships investing in the United States. A foreign partnership that
has no gross income that is effectively connected with the conduct of a
trade or business within the United States, and that would be required
to file a partnership return only because it has gross income derived
from sources within the United States, is not required to file a
partnership return under section 6031 if--
(i) No United States person has a direct or indirect interest in
the partnership;
(ii) The gross income derived from sources within the United States
is either fixed or determinable annual or periodical income described
in Sec. 1.1441-2(b) or other amounts subject to withholding described
in Sec. 1.1441-2(c);
(iii) Forms 1042 and 1042-S are filed with respect to all such
gross income in accordance with Sec. 1.1461-1 (b) and (c). In order to
satisfy this requirement, Forms 1042 and 1042-S must be filed by the
partnership unless the partnership is not required to file such returns
under Sec. 1.1461-1 (b)(2) and (c)(4), in which case, Forms 1042 and
1042-S must be filed by another withholding agent (or agents); and
(iv) The tax liability of the partners with respect to such gross
income has been fully satisfied by the withholding of tax at the
source, if applicable, under chapter 3 of the Internal Revenue Code.
(3) Partnership information or returns required of partners who are
United States persons--(i) In general. If a United States person is a
partner in a partnership that is not required to file a partnership
return, the district director or director of the service center may
require that person to render the statements or provide the information
necessary to verify the accuracy of the reporting by that person of any
items of partnership income, gain, loss, deduction, or credit.
(ii) Certain partnership elections. For a partnership that is not
otherwise required to file a partnership return, if an election that
can only be made by the partnership under section 703 (affecting the
computation of taxable income derived from a partnership) is to be made
by or for the partnership, a return
[[Page 3680]]
on the form prescribed for the partnership return must be filed for the
partnership. The return must be signed by--
(A) Each partner that is a partner in the partnership at the time
the election is made; or
(B) Any partner of the partnership who is authorized (under local
law or the partnership's organizational documents) to make the election
and who represents to having such authorization under penalties of
perjury.
(iii) Controlled foreign partnerships. Certain United States
persons who are partners in a foreign partnership controlled (within
the meaning of section 6038(e)(1)) by United States persons may be
required to provide information with respect to the partnership under
section 6038.
(4) Exclusion for certain organizations. The return requirement of
section 6031 and this section does not apply to the International
Telecommunications Satellite Organization, the International Maritime
Satellite Organization, or any organization that is a successor of
either.
(c) Partnerships excluded from the application of subchapter K--(1)
Wholly excluded--(i) Year of election. An eligible partnership as
described in Sec. 1.761-2(a) that elects to be excluded from all the
provisions of subchapter K of chapter 1 of the Internal Revenue Code in
the manner specified by Sec. 1.761-2(b)(2)(i) must timely file the form
prescribed for the partnership return for the taxable year for which
the election is made. In lieu of the information otherwise required,
the return must contain or be accompanied by the information required
by Sec. 1.761-2(b)(2)(i).
(ii) Subsequent years. Except as otherwise provided in paragraph
(c)(1)(i) of this section, an eligible partnership that elects to be
wholly excluded from the application of subchapter K is not required to
file a partnership return.
(2) Deemed excluded. An eligible partnership that is deemed to have
elected exclusion from the application of subchapter K beginning with
its first taxable year, as specified in Sec. 1.761-2(b)(2)(ii), is not
required to file a partnership return.
(d) Definitions--(1) Partnership. For the meaning of the term
partnership, see Sec. 1.761-1(a).
(2) United States person. In applying this section, United States
person means a person described in section 7701(a)(30); the government
of the United States, a State, or the District of Columbia (including
an agency or instrumentality thereof); or a corporation created or
organized in Guam, the Commonwealth of the Northern Mariana Islands,
the U.S. Virgin Islands, and American Samoa, if the requirements of
sections 881(b)(1) (A), (B), and (C) are met for such corporation. The
term does not include an alien individual who is a resident of Puerto
Rico, Guam, the Commonwealth of the Northern Mariana Islands, the U.S.
Virgin Islands, or American Samoa, as determined under
Sec. 301.7701(b)-1(d) of this chapter.
(e) Procedural requirements--(1) Place for filing--(i) Domestic
partnerships. The return of a domestic partnership that is required to
file under paragraph (a) of this section must be filed with the service
center for the internal revenue district in which the partnership has
its principal office or principal place of business in the United
States.
(ii) Foreign partnerships with United States business or income.
The return of a foreign partnership that is required to file under
paragraph (b)(1) of this section must be filed--
(A) With the service center for the internal revenue district in
which the partnership has its principal office or principal place of
business in the United States; or
(B) With the Internal Revenue Service Center, Philadelphia, PA
19255-0011 if the partnership has no office or place of business in the
United States.
(iii) Foreign partnerships without United States business or
income. The return of a foreign partnership filed under paragraph
(b)(3)(ii) of this section (regarding partnerships for which an
election under section 703 is made) must be filed with the Internal
Revenue Service Center, Philadelphia, PA 19255-0011. A statement must
be attached to the partnership return indicating that the return is
being filed pursuant to paragraph (b)(3)(ii) of this section solely to
make one or more elections under section 703.
(2) Time for filing. The return of a partnership must be filed on
or before the fifteenth day of the fourth month following the close of
the taxable year of the partnership.
(3) Magnetic media filing. For magnetic media filing requirements
with respect to partnerships, see section 6011(e)(2) and the
regulations thereunder.
(f) Effective date. This section applies to taxable years of a
partnership ending on or after the 90th day after the date final
regulations on this subject are published in the Federal Register.
However, in no event will paragraph (b)(2) of this section apply to
taxable years of a partnership that begin before January 1, 1999.
Par. 3. Section 1.6063-1 is amended by adding paragraph (c) to read
as follows:
Sec. 1.6063-1 Signing of returns, statements, and other documents made
by partnerships.
* * * * *
(c) Certain partnership elections--(1) In general. For rules
regarding the authority of a partner to sign a partnership return filed
solely for the purpose of making certain partnership-level elections,
see Sec. 1.6031(a)-1(b)(3)(ii).
(2) Effective date. The provisions of paragraph (c) of this section
apply to taxable years of a partnership ending on or after the 90th day
after the date final regulations on this subject are published in the
Federal Register.
Michael P. Dolan,
Deputy Commissioner of Internal Revenue.
[FR Doc. 98-1529 Filed 1-23-98; 8:45 am]
BILLING CODE 4830-01-U