[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