Applicability of small partnership exception clarified


The IRS Office of Chief Counsel concluded in a program manager technical advice memorandum (PMTA 2020-001) that a 1984 revenue procedure was not obsoleted by the Bipartisan Budget Act of 2015 (BBA) and continues to apply in providing relief from late-filing penalties for certain small partnerships.

Rev. Proc. 84-35 provided that the Section 6698 penalty relating to the failure to file a partnership tax return, would not apply to small partnerships, defined as those that had 10 or fewer partners, each of whom is a natural person (other than a nonresident alien) or an estate, and each partner’s share of each partnership item is the same as such partner’s share of every other item. Rev. Proc. 84-35 defined a small partnership by looking to Section 6231(a)(1)(B), which was enacted as part of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), and references the “small partnership exception” to the TEFRA procedures.

In 2015, with the enactment of the BBA, Congress repealed Section 6231(a)(1)(B). The issue posed to the Office of Chief Counsel was whether Rev. Proc. 84-35 was still in effect, considering the repeal of this provision. The Office of Chief Counsel determined that despite the repeal of the small partnership exception, that provision was in effect when Rev. Proc. 84-35 was originally issued, and “[thus], it is irrelevant that there does not exist any current Section 6231(a)(1)(B) that is generally effective and applicable to partnerships seeking relief under Revenue Procedure 84-35.” In addition, the legislative history of Section 6698 provided the basis for Rev. Proc. 84-35, and that statute was not affected by the repeal of TEFRA and the enactment of the BBA.

Partnerships that have late-filed Form 1065, that qualify as “small partnerships” under Rev. Proc. 84-35, should consider requesting relief from the IRS under that guidance, should they receive a notice proposing or assessing penalties under Section 6698.



Tax professional standards statement

This content supports Grant Thornton LLP’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.


More tax hot topics