Internal Revenue Bulletin 2018-8 (PDF rendition): IRS Notices

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HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
ADMINISTRATIVE
Notice 2018–10, page 359.
This notice provides guidance relating to the excise tax on
medical devices imposed by § 4191. Specifically, this notice
provides temporary relief, for the first three calendar quarters
of 2018, to medical device manufacturers, producers and
importers from the failure to deposit penalties imposed by
§ 6656, where the taxpayer demonstrates good faith.
REG–118067–17, page 360.
This document contains proposed regulations implementing
section 1101 of the Bipartisan Budget Act of 2015, which was
enacted into law on November 2, 2015. The Bipartisan Budget
Act repeals the current rules governing partnership audits and
replaces them with a new centralized partnership audit regime
that, in general, determines, assesses and collects tax at the
partnership level. These proposed regulations provide rules
addressing how partnerships and their partners adjust tax
attributes to take into account partnership adjustments under
the centralized partnership audit regime.
EXCISE TAX
Notice 2018–10, page 359.
This notice provides guidance relating to the excise tax on
medical devices imposed by § 4191. Specifically, this notice
provides temporary relief, for the first three calendar quarters
of 2018, to medical device manufacturers, producers and
importers from the failure to deposit penalties imposed by
§ 6656, where the taxpayer demonstrates good faith.
Finding Lists begin on page ii.
Bulletin No. 2018–8
February 20, 2018

The IRS Mission
Provide America’s taxpayers top-quality service by helping
them understand and meet their tax responsibilities and en-
force the law with integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument of
the Commissioner of Internal Revenue for announcing official
rulings and procedures of the Internal Revenue Service and for
publishing Treasury Decisions, Executive Orders, Tax Conven-
tions, legislation, court decisions, and other items of general
interest. It is published weekly.
It is the policy of the Service to publish in the Bulletin all
substantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless other-
wise indicated. Procedures relating solely to matters of internal
management are not published; however, statements of inter-
nal practices and procedures that affect the rights and duties
of taxpayers are published.
Revenue rulings represent the conclusions of the Service on
the application of the law to the pivotal facts stated in the
revenue ruling. In those based on positions taken in rulings to
taxpayers or technical advice to Service field offices, identify-
ing details and information of a confidential nature are deleted
to prevent unwarranted invasions of privacy and to comply with
statutory requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions of
the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A, Tax
Conventions and Other Related Items, and Subpart B, Legisla-
tion and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative Rul-
ings. Bank Secrecy Act Administrative Rulings are issued by
the Department of the Treasury’s Office of the Assistant Sec-
retary (Enforcement).
Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbar-
ment and suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index for
the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
February 20, 2018Bulletin No. 2018–8

Part III. Administrative, Procedural, and Miscellaneous
Medical Device Excise Tax
Deposit Penalty Relief
Notice 2018–10
SECTION 1. PURPOSE
This notice provides guidance relating
to the excise tax on medical devices im-
posed by § 4191 (the “medical device
excise tax”) of the Internal Revenue Code
(the “Code”). Specifically, this notice pro-
vides temporary relief to medical device
manufacturers from the failure to deposit
penalties imposed by § 6656.
SECTION 2. BACKGROUND
Section 4191 imposes a 2.3% excise
tax on the sale of certain medical devices
by the manufacturer.
Section 174 of the Protecting Ameri-
cans from Tax Hikes Act of 2015, enacted
as part of the Consolidated Appropriations
Act, 2016, Division Q, Pub. L. 114 –113,
129 Stat. 2242, 3071 (December 18, 2015)
(jointly, the Act), established a two-year
moratorium on the medical device excise
tax for the period that began on January 1,
2016, and ended on December 31, 2017.
Thus, sales of taxable medical devices
during the moratorium period were not
subject to tax. Absent further legislative
action, the medical device excise tax ap-
plies to sales of taxable medical devices
on and after January 1, 2018.
The medical device excise tax is codified
in subtitle D, chapter 32 of the Code (“chap-
ter 32”), which pertains to excise taxes im-
posed on the sale or use of taxable articles
by manufacturers, producers, and importers.
Chapter 32 taxes, including the medical de-
vice excise tax, are reported on Form 720,
Quarterly Federal Excise Tax Return.See
§§ 40.6011(a)–1(a)(1) and 40.0 –1(a).
Section 6302 of the Code authorizes
the IRS to establish the mode and time for
collecting certain taxes, including the
taxes imposed by chapter 32. Section
40.6302(c)–1(a)(1) of the Excise Tax Pro-
cedural Regulations requires each person
that is required to file Form 720 to make
deposits of tax for each semimonthly pe-
riod in which the tax liability is incurred.
A semimonthly period is the first 15 days
of a calendar month or the portion of a
calendar month following the 15
th
day of
the month.See§ 40.0 –1(c).
The deposit for a tax imposed by chap-
ter 32 for each semimonthly period must
not be less than 95% of the amount of net
tax liability incurred during the semi-
monthly period unless the safe harbor in
§ 40.6302(c)–1(b)(2)(ii) or (iii) applies.
See§ 40.6302(c)–1(b)(1). Under the safe
harbor, any person that filed a Form 720
reporting a tax imposed by chapter 32 for
the second preceding calendar quarter (the
look-back quarter) is considered tohave
met the semimonthly deposit requirement
for the current quarter if: (i) the deposit for
each semimonthly period in the current cal-
endar quarter is not less than 1/6 of the net
tax liability reported for the look-back quar-
ter; (ii) each deposit is made on time; (iii)
the amount of any underpayment is paid by
the due date of the return; and (iv) the per-
son’s liability does not include any tax that
was not imposed during the look-back quar-
ter. Section 40.6302(c)–1(b)(2)(v) provides
that if a person fails to make deposits as
required, the IRS may withdraw the per-
son’s right to use the safe harbor rules of
§ 40.6302(c)–1(b)(2).
Section 6656 imposes a penalty in the
case of any failure by any person to make
timely deposits as required by § 6302. A
taxpayer may avoid penalties under § 6656
for failure to make deposits of taxes if the
taxpayer makes an affirmative showing that
such failure is due to reasonable cause and
not due to willful neglect.See§ 6656 and
the corresponding regulations.
SECTION 3. DEPOSIT PENALTY
RELIEF
(a)Overview. With the end of the mor-
atorium on the medical device excise tax,
taxpayers are required to resume making
semimonthly deposits of tax. The first de-
posit, covering the first 15 days of January,
is due by January 29, 2018. In consideration
of the short time frame between the end of
the moratorium period and the due date of
the first deposit and in the interest of sound
tax administration, the IRS and the Treasury
Department have decided to provide tempo-
rary relief from the § 6656 penalty for the
first three calendar quarters of 2018, as de-
scribed below. The normal rules under
§ 6656 and the corresponding regulations
will apply with respect to deposits due dur-
ing the fourth calendar quarter of 2018 and
thereafter.
Beginning in the third calendar quarter of
2018, medical device manufacturers may
use the safe harbor rules of § 40.6302(c)–
1(b)(2) for semimonthly deposits due during
that quarter. For purposes of the safe harbor,
the first calendar quarter of 2018 is the look-
back quarter for deposits due during the
third calendar quarter.
(b)Relief. (i) During the first three cal-
endar quarters of 2018, the IRS will not
impose the penalty provided in § 6656 on a
taxpayer liable for the medical device excise
tax that fails to make timely deposits of the
medical device excise tax as required by
§§ 40.6302(c)–1 and 40.6302(c)–2 (relating
to special deposits required in September),
provided that the taxpayer demonstrates a
good faith attempt to comply with require-
ments of §§ 40.6302(c)–1 and 40.6302(c)–2
and that the failure was not due to willful
neglect. Thereafter, a taxpayer may avoid
penalties if it makes an affirmative showing
that the failure to deposit is due to reason-
able cause and not due to willful neglect.
(ii) During the third and fourth calen-
dar quarters of 2018, the IRS will not
exercise its authority under § 40.6302(c)–
1(b)(2)(v) to withdraw the taxpayer’s
right to use the deposit safe harbor rules of
§ 40.6302(c)–1(b)(2) due to a failure to
make deposits as required, provided the
taxpayer satisfies the requirements of the
first sentence of paragraph (b)(i) of this
section for the look-back quarter at issue.
SECTION 4. EFFECTIVE DATE
This notice is effective on and after
January 1, 2018.
SECTION 5. DRAFTING
INFORMATION
The principal author of this notice is
Natalie Payne of the Office of Associate
Chief Counsel (Passthroughs & Special
Industries). For further information re-
garding this notice, please contact Ms.
Payne at (202) 317-6855 (not a toll-free
number).
Bulletin No. 2018–8February 20, 2018
359

Part IV. Items of General Interest
Centralized Partnership
Audit Regime: Adjusting
Tax Attributes
REG–118067–17
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION:Notice of proposed rulemaking.
SUMMARY: This document contains
proposed regulations implementing sec-
tion 1101 of the Bipartisan Budget Act of
2015, which was enacted into law on No-
vember 2, 2015. The Bipartisan Budget
Act repeals the current rules governing
partnership audits and replaces them with
a new centralized partnership audit regime
that, in general, determines, assesses and
collects tax at the partnership level. These
proposed regulations provide rules ad-
dressing how partnerships and their part-
ners adjust tax attributes to take into ac-
count partnership adjustments under the
centralized partnership audit regime.
DATES: Written or electronic comments
and requests for a public hearing must be
received by May 3, 2018.
ADDRESSES:Send submissions to: CC:
PA:LPD:PR (REG–118067–17), Room
5207, Internal Revenue Service, P.O.
Box 7604, Ben Franklin Station, Wash-
ington, DC 20044. Submissions may be
hand delivered Monday through Friday
between the hours of 8:00 a.m. and 4:00
p.m. to CC:PA:LPD:PR (REG–118067–
17), Courier’s Desk, Internal Revenue
Service, 1111 Constitution Avenue,
NW, Washington, DC 20224. Alterna-
tively, taxpayers may submit comments
electronically via the Federal eRulemak-
ing Portal at http://www.regulations.gov
(REG–118067–17).
FOR FURTHER INFORMATION CON-
TACT:Concerning the proposed regula-
tions, Allison R. Carmody or Meghan M.
Howard of the Office of Associate Chief
Counsel (Passthroughs and Special Indus-
tries), (202) 317-5279;concerning the
submission of comments, Regina L.
Johnson, (202) 317-6901 (not toll-free
numbers).
SUPPLEMENTARY INFORMATION:
Background
This document contains proposed reg-
ulations that supplement the regulations
proposed in the notice of proposed rule-
making (REG–136118 –15) published in
theFederal Registeron June 14, 2017
(82 FR 27334) (the “June 14 NPRM”) and
amend the Income Tax Regulations (26
CFR part 1) under Subpart – Partners and
Partnerships and the Procedure and Ad-
ministration Regulations (26 CFR part
301) under Subpart – Tax Treatment of
Partnership Items to implement the cen-
tralized partnership audit regime. Further-
more, certain provisions of the June 14
NPRM are being amended.
1.The New Centralized Partnership
Audit Regime
For information relating to (1) the
new centralized partnership audit re-
gime enacted by the Bipartisan Budget
Act (BBA), Pub. L. 114 –74 (129 Stat.
58 (2015)) (as amended by the Protect-
ing Americans from Tax Hikes Act of
2015, Pub. L. 114 –113 (129 Stat. 2242
(2015)); (2) Notice 2016 –23 (2016 –13
I.R.B. 490 (March 28, 2016)), which
requested comments on the new partner-
ship audit regime enacted by the BBA;
and (3) the temporary regulations (TD
9780, 81 FR 51795 (August 5, 2016))
and a notice of proposed rulemaking
(REG–105005–16, 81 FR 51835 (Au-
gust 5, 2016)), which provided the time,
form, and manner for a partnership to
make an election into the centralized
partnership audit regime for a partner-
ship taxable year beginning before the
general effective date of the regime, see
the Background section of the June 14
NPRM.
2.Proposed Regulations Implementing
the Centralized Partnership Audit
Regime
The June 14 NPRM addressed various
issues concerning the scope and process
of the new centralized partnership audit
regime. Unless otherwise noted, all refer-
ences to proposed regulations in this pre-
amble refer to the regulations proposed by
the June 14 NPRM.
Proposed §§ 301.6225–1, 301.6225–2,
and 301.6225–3 provide rules relating to
partnership adjustments, including the
computation of the imputed underpay-
ment, modification of the imputed under-
payment, and the treatment of adjustments
that do not result in an imputed underpay-
ment.
Proposed § 301.6225–1 sets forth rules
for computing the imputed underpayment,
and proposed § 301.6225–2 sets forth the
rules under which the partnership may
request a modification to adjust the im-
puted underpayment calculated under pro-
posed § 301.6225–1. The modification
rules contained in proposed § 301.6225–2
generally allow: (1) Modifications that re-
sult in the exclusion of certain adjust-
ments, or portions thereof, from the cal-
culation of the imputed underpayment
(such as a modification under proposed
§ 301.6225–2(d)(2) (amended returns by
partners), (d)(3) (tax-exempt partners),
(d)(5) (certain passive losses of publicly
traded partnerships), (d)(7) (partnerships
with partners that are qualified investment
entities described in section 860 of the
Internal Revenue Code (Code)), (d)(8)
(partner closing agreements), and, if ap-
plicable, (d)(9) (other modifications)); (2)
rate modifications, which affect only the
taxable rate applied to the total netted
partnership adjustment (described in pro-
posed § 301.6225–2(d)(4)); and (3) mod-
ifications to the number and composition
of imputed underpayments (described in
proposed § 301.6225–2(d)(6)).
Proposed § 301.6225–3 sets forth rules
for the treatment of adjustments that do not
result in an imputed underpayment. In gen-
eral, pursuant to proposed § 301.6225–
3(b)(1) the partnership takes the adjustment
into account in the adjustment year as a
reduction in non-separately stated income or
as an increase in non-separately stated loss
depending on whether the adjustment is to
an item of income or loss. Proposed
§ 301.6225–3(b)(2) provides that if an ad-
justment is to an item that is required to be
separately stated under section 702 of the
Internal Revenue Code (Code) the adjust-
ment shall be taken into account by the
partnership on its adjustment year return as
February 20, 2018Bulletin No. 2018–8
360

an adjustment to such separately stated item.
Proposed § 301.6225–3(b)(3) provides that
an adjustment to a credit is taken into ac-
count as a separately stated item.
Proposed §§ 301.6226 –1, 301.6226 –2,
and 301.6226 –3 provide rules relating to
the election under section 6226 by a part-
nership to have its reviewed year partners
take into account the partnership adjust-
ments in lieu of paying the imputed un-
derpayment determined under section
6225, the statements the partnership must
send to its partners, and the rules for how
the partners take into account the adjust-
ments, including the computation and
payment of the partners’ liability. If a
partnership makes the election under sec-
tion 6226 to “push out” adjustments to its
reviewed year partners, the partnership is
not liable for the imputed underpayment.
Instead, under proposed § 301.6226 –3,
reviewed year partners must pay any ad-
ditional chapter 1 tax that results from
taking the adjustments reflected on the
statements into account in the reviewed
year and from changes to the tax attributes
in the intervening years. In addition to
being liable for the additional tax, the
partner must also calculate and pay any
penalties, additions to tax, or additional
amounts determined to be applicable dur-
ing the partnership–level proceeding, and
any interest determined in accordance
with proposed § 301.6226 –3(d).
Finally, proposed § 301.6241–1 pro-
vides definitions for purposes of the cen-
tralized partnership audit regime.
On December 19, 2017, proposed rules
(REG–120232–17 and REG–120233–17)
were published in theFederal Register
(82 FR 60144) that would allow tiered
partnerships to push out audit adjustments
through to the ultimate taxpayers and pro-
vides rules implementing the procedural
and administrative aspects of the partner-
ship audit regime. For proposed rules re-
garding international provisions under the
centralized partnership audit regime, see
(REG–119337–17) published in theFed-
eral Registeron November 30, 2017 (82
FR 56765).
Explanation of Provisions
1.In General
These proposed regulations provide
rules that were reserved in the June 14
NPRM under proposed §§ 301.6225– 4
and 301.6226 – 4. It also provides related
proposed amendments to §§ 1.704 –1,
1.705–1, and 1.706 – 4. Specifically, these
rules address how and when partnerships
and their partners adjust tax attributes to
take into account partnership adjustments
under both sections 6225 and 6226. The
public provided comments in response to
the June 14 NPRM, and some comments
discussed issues relevant to the reserved
sections under proposed §§ 301.6225– 4
and 301.6226 – 4, which were taken into
consideration in drafting these proposed
regulations.
Because these regulations are supple-
menting the regulations published in the
June 14 NPRM, the numbering and order-
ing of some of the provisions do not fol-
low typical conventions. The Department
of the Treasury (Treasury Department)
and the IRS anticipate that these provi-
sions will be appropriately integrated
when both these regulations and the pro-
posed regulations in the June 14 NPRM
are finalized.
These proposed rules are consistent
with the policy described in “The General
Explanation of Tax Legislation Enacted
for 2015” (Bluebook), which explained
that “[u]nder the centralized partnership
audit regime, the flowthrough nature of
the partnership under subchapter K of the
Code is unchanged, but the partnership is
treated as a point of collection of under-
payments that would otherwise be the re-
sponsibility of partners.” Joint Comm. on
Taxation, JCS-1–16, “General Explana-
tions of Tax Legislation Enacted in 2015,”
57 (2016).
The preamble to the June 14 NPRM
announced that the Treasury Department
and the IRS intended to provide additional
rules providing for adjustments to the ba-
sis of partnership property and book value
of any partnership property if the partner-
ship adjustment is a change to an item of
gain, loss, amortization or depreciation
(i.e., the change is basis derivative). These
proposed regulations, when finalized, will
provide this guidance.
2.Provisions Relating to Section 6225
A.In general
The June 14 NPRM defines a partnership
adjustment as any adjustment to any item
of income, gain, loss, deduction, or credit
of a partnership (as defined in proposed
§ 301.6221(a)–1(b)(1)), or any partner’s dis-
tributive share thereof (as described in pro-
posed § 301.6221(a)–1(b)(2)). See proposed
§ 301.6241–1(a)(6). Under the rules in pro-
posed § 301.6225–1, each partnership ad-
justment is either (i) taken into account in
the determination of an imputed underpay-
ment, or (ii) considered a partnership adjust-
ment that does not give rise to an imputed
underpayment. For a partnership adjustment
that is taken into account in the determina-
tion of the imputed underpayment, these
proposed regulations provide rules for ad-
justing partnership asset basis and book
value, rules for the creation of notional
items, rules for allocating these notional
items under section 704(b), successor rules
for situations in which reviewed year part-
ners (as defined in proposed § 301.6241–
1(a)(9)) are not adjustment year partners (as
defined in proposed § 301.6241–1(a)(2)),
and rules for determining the impact of no-
tional items on tax attributes in certain situ-
ations. See section (2)(B) of this preamble.
These regulations also provide rules for the
allocation of any partnership expenditure re-
lated to the imputed underpayment. See sec-
tion (2)(B)(vii) of this preamble. Finally,
these regulations provide guidance in the
case of a partnership adjustment that does
not give rise to an imputed underpayment.
See section (2)(C) of this preamble.
B.Adjustments in the case of a
partnership adjustment that results in an
imputed underpayment
i. In General
Prior to the enactment of the central-
ized partnership audit regime, in the case
of an adjustment to an item of income,
gain, loss, deduction or credit in the con-
text of an examination by the IRS for or
related to a partnership, partnership ad-
justments were generally taken into ac-
count by the partners of the partnership
for the year under examination by a new
or corrected allocation of the relevant
item, and partners took those items into
account with respect to the partnership
year under examination. In contrast, under
the centralized partnership audit regime,
for a partnership adjustment that is taken
into account in the determination of an
Bulletin No. 2018–8February 20, 2018
361

imputed underpayment, the partnership
adjustment is generally taken into account
by the partnership in the year in which the
related payment obligation (the imputed
underpayment) arises. Further, in light of
the fact that these partnership adjustments
are with respect to a partnership year that
is earlier than the year in which the im-
puted underpayment arises, the partners of
the partnership may have changed in the
later year.
Under subchapter K, a partnership gen-
erally computes items of income, gain,
loss, deduction or credit under section
703, which are then allocated to the part-
ners under section 704. Under section
705, a partner increases its basis in its
partnership interest (outside basis) by its
distributive share of taxable income of the
partnership as determined under section
703(a). However, in the case of a positive
partnership adjustment that is taken into
account in the determination of an im-
puted underpayment, section 6225 does
not itself provide for an item of taxable
income under section 703(a) to be allo-
cated to partners. Instead, calculations are
made at the partnership level and the part-
nership pays the liability in the form of an
imputed underpayment. Failure to provide
adjustments to outside basis that reflect
the partnership adjustments that resulted
in the imputed underpayment could lead
to a partner being effectively taxed twice
on the same item of income, once indi-
rectly on payment of the imputed under-
payment and again on a disposition of the
partnership interest or on a distribution of
cash by the partnership. Taxing the same
item of income twice is not consistent
with the flowthrough nature of partner-
ships under subchapter K. Thus, these
proposed regulations provide for adjust-
ment to a partner’s basis in its interest -
and certain other tax attributes that are
interdependent with basis under subchap-
terK-inorder to prevent effective double
taxation or other distortions.
Specifically, under proposed § 301.6225–
4(a)(1),when there is a partnership adjust-
ment (as defined in proposed § 301.6241–
1(a)(6)), the partnership and its adjustment
year partners (as defined in proposed
§ 301.6241–1(a)(2)) generally must adjust
their specified tax attributes (as defined in
proposed § 301.6225– 4(a)(2)). Specified
tax attributes are the tax basis and book
value of a partnership’s property, amounts
determined under section 704(c), adjust-
ment year partners’ bases in their partner-
ship interests, and adjustment year partners’
capital accounts determined and maintained
in accordance with § 1.704 –1(b)(2). See
proposed § 301.6225– 4(a)(2).
In the case of a partnership adjustment
that results in an imputed underpayment, the
adjustments to specified tax attributes must
be made on a partnership-adjustment-by-
partnership-adjustment basis, and thus are
created separately for each partnership ad-
justment (whether a negative adjustment or
a positive adjustment) without regard to
their summation as part of the determination
of the total netted partnership adjustment in
proposed § 301.6225–1(c)(3). See proposed
§ 301.6225– 4(b)(1).
ii. Manner of Adjusting Specified Tax
Attributes
The partnership must first make appro-
priate adjustments to the book value and
basis of property to take into account
any partnership adjustment. See proposed
§ 301.6225– 4(b)(2). This rule also re-
quires amounts determined under section
704(c) to be adjusted to take into account
the partnership adjustment. The partner-
ship does not make any adjustments to the
book value or basis of partnership prop-
erty with respect to property that was held
by the partnership in the reviewed year
but is no longer held by the partnership in
the adjustment year. Comments are re-
quested as to whether, in these situations,
a partnership should be allowed to adjust
the basis (or book value) of other partner-
ship property (such as in a manner similar
to the rules that apply in allocating section
734(b) adjustments under section 755
(i.e., § 1.755–1(c)).
Proposed § 301.6225– 4(b)(3) provides
that notional items are then created with
respect to the partnership adjustment, and
these notional items are then allocated ac-
cording to the rules described in section
(2)(B)(iii) of this preamble. The items are
considered notional items because their
sole purpose is to affect partner-level
specified tax attributes, and thus they are
not considered to be items for purposes of
adjusting other tax attributes.
In the case of a partnership adjustment
that is an increase to income or gain, a
notional item of income or gain is created
in an amount equal to the partnership ad-
justment. Similarly, in the case of a part-
nership adjustment that is an increase to
an expense or a loss, a notional item of
expense or loss is created in an amount
equal to the partnership adjustment. See
proposed § 301.6225– 4(b)(3)(ii) and (iii).
However, in the case of a partnership
adjustment that is a decrease to income or
gain, a notional item of expense or loss is
created in an amount equal to the partner-
ship adjustment. Similarly, in the case of a
partnership adjustment that is a decrease
to an expense or a loss, a notional item of
income or gain is created in an amount
equal to the partnership adjustment. See
proposed § 301.6225– 4(b)(3)(iv) and (v).
These rules have the effect of reversing
out the reviewed year allocation to the
extent necessary to reflect the partnership
adjustment.
Thus, under these proposed regulations,
an adjustment year partner increases its out-
side basis for notional income that is allo-
cated to it. Similarly, a partnership that de-
termines and maintains capital accounts in
accordance with § 1.704 –1(b)(2)(iv) also
adjusts capital accounts for notional items.
See proposed § 301.6225– 4(e),Example 1.
In the case of a partnership adjustment that
reflects a net increase or net decrease in
credits as determined under proposed
§ 301.6225–1(d), thepartnership creates
one or more notional items of income, gain,
loss, or deduction that reflects the change in
the item giving rise to the credit. See pro-
posed § 301.6225– 4(b)(3)(vi).
Under these proposed regulations, only
specified tax attributes are adjusted. The
Treasury Department and the IRS consid-
ered proposing broader rules for adjusting
other tax attributes than those included in
these proposed regulations. Tax attributes
are defined in the June 14 NPRM as any-
thing that can affect, with respect to a
partnership or a partner, the amount or
timing of an item of income, gain, loss,
deduction, or credit (as defined in pro-
posed § 301.6221(a)–1(b)(1)) or that can
affect the amount of tax due in any taxable
year. Examples of tax attributes include,
but are not limited to, basis and holding
period, as well as the character of items of
income, gain, loss, deduction, or credit
and carryovers and carrybacks of such
items. See proposed § 301.6241–1(a)(10).
February 20, 2018Bulletin No. 2018–8
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Comments are requested as to whether
tax attributes other than specified tax at-
tributes should be adjusted, at either the
partner or thepartnership level, when the
partnership pays an imputed underpayment.
Specifically, commenters are requested to
address whether guidance should provide a
general rule that partnership adjustments
and notional items are taken into account as
items for all purposes of Subtitle A, except
to the extent of the partner’s actual tax due.
For example, guidance could provide that
the partner level tax calculation includes no-
tional items for purposes of calculating the
tentative tax due, but that for purposes of
determining the ultimate tax due, the part-
ner’s share of the imputed underpayment
would be subtracted. Alternatively, guid-
ance could provide a list of tax attributes
that are generally adjusted, and a list of
those that are not.
Specific tax attributes for which com-
ments are requested include gross income
rules for publicly traded partnerships un-
der section 7704(b) and qualified invest-
ment entities described in section 860.
Other tax attributes for which comments
are requested include net operating loss
carryforwards, other tax accounting under
subchapter K, and those that contain lim-
itations based on adjusted gross income
(for example, the earned income credit
allowed under section 32, the child tax
credit allowed under section 24).Com-
ments are also requested as to whether any
special rules should be provided for adjust-
ments to tax attributes in the cross-border
context, and how those adjustments should
differ, if at all, from adjustments to tax at-
tributes made in the domestic context.
These regulations also contain rules to
coordinate the changes to specified tax
attributes made under these rules with
other rules of the Code, including the rest
of the centralized partnership audit re-
gime. See proposed § 301.6225– 4(a)(4).
To the extent a partner or partnership ap-
propriately adjusted tax attributes prior to
a final determination under subchapter C
of chapter 63 with respect to a partnership
adjustment (for example, in the context of
an amended return modification described
in proposed § 301.6225–2(d)(2) or a clos-
ing agreement described in proposed
§ 301.6225–2(d)(8)), those tax attributes
are not adjusted under this section. For
example,when a partnership requests a
modification of the imputed underpayment
with respect to a partner-specific tax attri-
bute (for example, a net operating loss) by
the filing of an amended return by a partner
or by entering into a closing agreement, the
partner-specific tax attribute must be re-
duced to the extent it is used to modify the
imputed underpayment.
The IRS is considering providing in
forms, instructions, or other guidance that
partnerships will be required to provide
information to their partners about the
amount and nature of changes to tax attri-
butes and any other information needed
by the partners.
iii. Allocation of Notional Items
Under section 704(b), a partner’s distrib-
utive share of income, gain, loss, deduction,
or credit (or item thereof) is determined
under the partnership agreement if the allo-
cation under the agreement has substantial
economic effect. Section 1.704 –1(b)(2)(i)
provides that the determination of whether
an allocation of income, gain, loss, or de-
duction (or item thereof) to a partner has
substantial economic effect involves a two-
part analysis that is made at the end of the
partnership year to which the allocation re-
lates. In order for an allocation to have sub-
stantial economic effect, the allocation must
have both economic effect (within the
meaning of § 1.704 –1(b)(2)(ii)) and be sub-
stantial (within the meaning of § 1.704 –
1(b)(2)(iii)). If the allocation does not have
substantial economic effect, or the partner-
ship agreement does not provide for the
allocation, then the allocation must be made
in accordance with the partners’ interests in
the partnership under § 1.704 –1(b)(3).
Commenters recommended applying
the existing rules in subchapter K, includ-
ing section 704(b), in the context of sec-
tion 6225. While the basic principles of
section 704(b) remain sound in the con-
text of notional items, the unique nature
of partnership adjustments under section
6225 requires the application of these
principles to be modified. See proposed
§ 1.704 –1(b)(1)(viii)(a). Specifically, the
allocation of notional items cannot have
substantial economic effect because the
allocation relates to two different years –
while generally determined with respect
to the reviewed year, notional items are
taken into account in the adjustment year.
Thus, the proposed regulations provide
that the allocation of a notional item does
not have substantial economic effect, but,
to address this issue, further provide that
the allocation will be deemed to be in
accordance with the partners’ interests in
the partnership if the allocation of a no-
tional item of income or gain described in
proposed § 301.6225– 4(b)(3)(ii), or ex-
pense or loss described in proposed
§ 301.6225– 4(b)(3)(iii), is made in the
manner in which the corresponding actual
item would have been allocated in the
reviewed year under the section 704 reg-
ulations.Additionally, the allocation of a
notional item of expense or loss described in
proposed § 301.6225– 4(b)(3)(iv), or a no-
tional item of income or gain described in
proposed § 301.6225– 4(b)(3)(v), must be
allocated to the reviewed year partners that
were originally allocated that excess item in
the reviewed year (or their successors). See
proposed § 1.704 –1(b)(4)(xi). As described
in section (2)(B)(iv) of this preamble, how-
ever, these rules require treating successors
as reviewed year partners.
iv. Successors
While the determination of partnership
adjustments under section 6225 is made
with respect to reviewed year partners, it
is the adjustment year partners that bear
the economic burden (or benefit) of a part-
nership adjustment. As noted in section
(2)(B)(i) of this preamble, outside basis
adjustments must be made to avoid effec-
tively taxing the same item of income
twice. While this concern is clearest when
a reviewed year partner remains a partner
in the adjustment year, the same concern
generally exists when the interest is trans-
ferred as the failure to provide outside
basis would result in effectively taxing the
same item of income twice, just with re-
spect to two different taxpayers. Thus,
these regulations provide successor rules
under proposed § 1.704 –1(b)(1)(viii)(b)
for purposes of adjusting specified tax at-
tributes, including outside basis.
A reviewed year partner’s successor is
generally defined as either a transferee
that succeeds to the transferor partner’s
capital account under proposed § 1.704 –
1(b)(2)(iv)(l), or, in the case of a complete
liquidation of a partner’s interest, as the
remaining partners to the extent their in-
Bulletin No. 2018–8February 20, 2018
363

terests increased as a result of the liqui-
dated partner’s departure. See proposed
§§ 1.704 –1(b)(1)(viii)(b) and 301.6225–
4(e),Example 3.
The June 14 NPRM provides that if
any reviewed year partner with respect to
whom an amount was reallocated is not
also an adjustment year partner, the por-
tion of the adjustment that would other-
wise be allocated to such reviewed year
partner is allocated instead to the adjust-
ment year partner or partners who are the
successor or successors to the reviewed
year partner. See proposed § 301.6225–
3(b)(4). Further, this rule provides that if
the partnership cannot identify an adjust-
ment year partner that is a successor to the
reviewed year partner described in the
previous sentence or if a successor does
not exist, the portion of the adjustment
that would otherwise be allocated to that
reviewed year partner is allocated among
the adjustment year partners according to
the adjustment year partners’ distributive
shares.
A commenter stated that this rule in the
June 14 NPRM allocating a reallocation
adjustment that does not result in an im-
puted underpayment could result in situa-
tions in which partners in a publicly
traded partnership described in section
7704(b) own units that are not fungible. In
response to this comment and due to ad-
ministrability concerns, theTreasury De-
partment and the IRS reconsidered this rule
and have concluded that it is appropriate to
provide rules in these proposed regulations
relating to any situation in which a partner-
ship is unable, after exercising reasonable
diligence, to determine a successor for a
partnership adjustment under section 6225
(not only reallocation adjustments). These
rules require that the proposed standard in
the June 14 NPRM be replaced with a new
proposed regulation. Therefore, these regu-
lations amend proposed § 301.6225–3(b)(4)
by removing the final two sentences and
provide a rule in proposed § 1.704 –1(b)(1)
(viii)(b)(3) that if a partnership cannot de-
termine the transferee for a partnership in-
terest under proposed § 1.704 –1(b)(1)(viii)
(b)(2), the successor is deemed to be those
partners in the adjustment year who were
not also partners in the reviewed year or
otherwise identifiable as successors to re-
viewed year partners, in proportion to their
respective interests in the partnership.
Comments are requested as to whether
these new proposed rules would similarly
result in issues with respect to the fungi-
bility of these partnership interests and, if
so, specific recommendations for the final
regulations to address fungibility concerns
consistent with the centralized partnership
audit regime, the rules of subchapter K,
and the general framework of these pro-
posed regulations. Specifically, comment-
ers are requested to consider how the suc-
cessor rules should operate when, due to
the redemption of all reviewed year part-
ners, there are no identifiable successors
to reviewed year partners in the adjust-
ment year.
The Treasury Department and the IRS
considered other alternatives to the suc-
cessor rules in these proposed regulations,
including allocating notional items only to
adjustment year partners that were re-
viewed year partners, either solely in the
amount for which they would have been
allocated the notional item, or allocating
to them (and no other partners) the full
amount of the notional items. These pro-
posed rules contain successor rules be-
cause that approach preserves the eco-
nomics of the partners that were partners
in both the reviewed and the adjustment
year, and also facilitates any necessary
private contracts between buyers and sell-
ers of partnership interests. Comments are
requested as to whether an approach other
than successor rules are better suited to
preserving the single-layer of tax in sub-
chapter K while avoiding potential for
abuse or other inappropriate tax results.
Comments are also requested as to how
these successor rules should apply in the
case of partnership mergers and divisions.
Finally, comments are requested on is-
sues similar to those noted in the June 14
NPRM in section (5)(D)(ii) of the pream-
ble, namely whether the allocation of ad-
justments to a successor of a reviewed
year partner that was a tax-exempt partner
may raise issues concerning private bene-
fit to a person other than a tax-exempt
partner, including issues that might affect
the tax-exempt partner’s status under sec-
tion 501(c); excise taxes under chapter 42
of subtitle D of the Code or under sections
4975, 4976, or 4980; or requirements un-
der title I of the Employee Retirement
Income Security Act of 1974, Pub. L.
93– 406 (88 Stat. 829 (1974)) as amended
(ERISA), such as the fiduciary responsi-
bility rules under part 4 thereof. The Trea-
sury Department and the IRS request
comments from the public on whether
these potential issues may be adequately
addressed in partnership agreements or
whether guidance is needed to address
these potential issues. Any comments re-
lated to title I of ERISA will be shared
with the Department of Labor.
v. Adjusting Specified Tax Attributes in
Certain Circumstances
For certain types of partnership adjust-
ments, notional items are not created. Spe-
cifically, notional items are not created for a
partnership adjustment that does not derive
from items that would have been allocated
in the reviewed year under section 704(b),
such as a partnership adjustment based upon
a partner’s failure to report gain under sec-
tion 731, a partnership adjustment that is a
change of an item of deduction to a section
705(a)(2)(B) expenditure, or a partnership
adjustment to an item of tax-exempt in-
come. See proposed § 301.6225– 4(b)(4).
Nevertheless, in these situations specified
tax attributes are adjusted for the partnership
and its reviewed year partners (or their suc-
cessors) in a manner that is consistent with
how the partnership adjustment would have
been taken into account under the partner-
ship agreement in effect for the reviewed
year taking into account all facts and cir-
cumstances. See proposed § 301.6225– 4(e),
Example 5.
vi. Special Rules for Outside Basis in
Certain Cases
As noted in section (2)(B)(i) of this
preamble, partners normally adjust their
outside bases for notional items that are
allocated to them. However, in certain
cases, the proposed rules do not provide
for adjustments to outside basis. Specifi-
cally, when a tax-exempt partner transfers
its interest to a partner that is not tax-exempt
(taxable partner) between the reviewed year
and the adjustment year and the partnership
requests a modification because of the re-
viewed year partner’s status as a tax-exempt
entity, the successor taxable partner is dis-
allowed a basis adjustment. See proposed
§ 301.6225– 4(b)(6)(iii)(B). Without this
rule, a taxable successor partner would have
February 20, 2018Bulletin No. 2018–8
364

a basis increase when no imputed underpay-
ment was paid with respect to the partner’s
share of the partnership adjustment. Com-
ments are requested as to whether this rule
should be extended to rate modifications
described in proposed § 301.6225–2(d)(4)
as well. A basis adjustment is also disal-
lowed when a reviewed year partner trans-
fers its interest to a related party in a trans-
action in which not all gain or loss is
recognized during an administrative pro-
ceeding under subchapter C of chapter 63 of
the Code (subchapter C of chapter 63) and a
principal purpose of the transfer was to shift
the economic burden of the imputed under-
payment among related parties. Comments
are requested regarding whether basis ad-
justments should be disallowed in any other
circumstances.
vii. Accounting and Allocation of
Partnership Section 705(a)(2)(B)
Expenditures
Proposed § 301.6225– 4(c) describes
how the partnership’s expenditure arising
from an imputed underpayment and any
other amount under subchapter C of chap-
ter 63 is taken into account by the part-
nership and its partners. No deduction is
allowed under subtitle A of the Code for
any payment required to be made by a
partnership under subchapter C of chapter
63 and the amount is treated as an expen-
diture described in section 705(a)(2)(B).
See proposed § 301.6241– 4(a).
For an allocation to have economic ef-
fect, it must be consistent with the underly-
ing economic arrangement of the partners.
This means that, in the event that there is an
economic benefit or burden that corresponds
to the allocation, the partner to whom the
allocation is made must receive such eco-
nomic benefit or bear such economic bur-
den. See § 1.704 –1(b)(2)(ii). Generally, an
allocation of income, gain, loss, or deduc-
tion (or item thereof) to a partner will have
economic effect if, and only if, throughout
the full term of thepartnership, the part-
nership agreement provides: (1) For the
determination and maintenance of the
partners’ capital accounts in accordance
with § 1.704 –1(b)(2)(iv); (2) for liqui-
dating distributions to the partners to be
made in accordance with the positive
capital account balances of the partners;
and (3) for each partner to be uncondi-
tionally obligated to restore the deficit
balance in the partner’s capital account
following theliquidation of the partner’s
partnership interest. In lieu of satisfying the
third criterion, the partnership may satisfy
the qualified income offset rules set forth in
§ 1.704 –1(b)(2)(ii)(d).
Section 1.704 –1(b)(2)(iv)(i) provides
specific rules for determining whether an
allocation of a section 705(a)(2)(B) ex-
penditure has substantial economic effect.
Specifically, it requires that a partner’s
capital account be decreased by alloca-
tions made to such partner of expenditures
described in section 705(a)(2)(B). See
also § 1.704 –1(b)(2)(iv)(b). Further, un-
der section 705(a)(2)(B), the adjusted ba-
sis of a partner’s interest in a partnership
is decreased (but not below zero) by ex-
penditures of the partnership that are not
deductible in computing its taxable in-
come and not properly chargeable to cap-
ital account.
Several commenters addressed how the
partnership’s payment of an imputed un-
derpayment should be allocated among its
partners and how the payment should be
given effect. With respect to the pay-
ment’s allocation, commenters recom-
mended that the expenditure be allocated
among the partners in accordance with
their partnership agreement, subject to the
rules of section 704(b) (including the reg-
ulatory requirements for substantial eco-
nomic effect). The Treasury Department
and the IRS agree with the commenters
that the expenditure should be allocated
under section 704. These proposed regu-
lations contain special rules for allocating
the expenditure under section 704(b).
With respect to book capital account ad-
justments for the imputed underpayment,
commenters recommended that partners’
capital accounts be adjusted to reflect the
partnership’s payment of the imputed un-
derpayment. The Treasury Department and
the IRS agree with this comment but con-
clude that because the expenditure is treated
as an expenditure under section 705(a)(2)
(B) pursuant to the June 14 NPRM (pro-
posed § 301.6241– 4(a)), existing rules pro-
vide this result.
The Treasury Department and the IRS
have concluded, however, that the existing
rules that determine whether the economic
effect of an allocation is substantial should
be modified to take into account the unique
nature of these expenditures. When a part-
nership pays an imputed underpayment un-
der section 6225, it has the effect of con-
verting what would have been a non-
deductible partner-level expenditure into a
non-deductible partnership-level expendi-
ture. The proposed regulations provide that
an allocation of the nondeductible expendi-
ture will be considered to be substantial only
if the partnership allocates the expenditure
in proportion to the notional item to which it
relates, taking into account appropriate
modifications. See proposed §§ 1.704 –
1(b)(2)(iii)(a) and (f), 301.6225– 4(c) and
301.6225– 4(e),Example 4. This rule aligns
the economics of the income allocation (in
this case, the notional income allocation)
with the directly associated imputed under-
payment expense in a manner consistent
with the flowthrough nature of partnerships
under subchapter K. Absent this substanti-
ality rule in the regulations, partnerships
could inappropriately allocate expenses to
partners in the adjustment year in a manner
inconsistent with the underlying economic
arrangement of the partners. These new sub-
stantiality rules also apply to a payment
made by a pass-through partner under pro-
posed § 301.6226 –3(e)(4).
Similarly, for partnerships that do not
maintain capital accounts, the allocation
of the expenditure cannot be in accor-
dance with the partners’ interests in the
partnership to the extent it shifts the eco-
nomic burden of the payment of the im-
puted underpayment away from a partner
(or its successor) that would have been
allocated the corresponding notional in-
come item. However, the regulations pro-
vide that an allocation of an expense that
satisfies the new substantiality rule and in
which the partner’s distribution rights are
reduced by the partner’s share of the im-
puted underpayment is deemed to be in
accordance with the partners’ interests in
the partnership. See proposed § 1.704 –
1(b)(4)(xii). These proposed regulations
do not address the extent to which the
partnership may later reverse this alloca-
tion with a special chargeback or similar
provision. Comments are requested on
this issue.
One commenter recommended rules
specifying that a partner’s contribution of
funds to the partnership for payment of an
imputed underpayment will result in an
increase in that partner’s capital account.
Bulletin No. 2018–8February 20, 2018
365

This comment is not adopted because the
existing rules in subchapter K provide suf-
ficient guidance for this circumstance. A
commenter also recommended rules ad-
dressing the availability of a corporation’s
deduction under temporary § 1.163–
9T(b)(2) for a payment of interest in re-
spect of an underpayment of tax. This
comment is not adopted because it is be-
yond the scope of these proposed regula-
tions.
The proposed regulations also provide
that in order for an allocation of an expen-
diture for interest, penalties, additions to
tax, or additional amounts as determined
under section 6233 to be substantial, it
must be allocated to the reviewed year
partner in proportion to the allocation of
the related imputed underpayment, the re-
lated payment made by a pass-through
partner under proposed § 301.6226 –
3(e)(4), or the related notional item to
which it relates (whichever is appropri-
ate), taking into account modifications un-
der proposed § 301.6225–2 attributable to
that partner. See proposed § 1.704 –
1(b)(2)(iii)(f)(3). This rule has a similar
purpose as the rule in proposed § 1.704 –
1(b)(2)(iii)(f)(2) in that it aligns the eco-
nomics of these expenses with the part-
nership items to which they relate. Under
this rule, an expense for interest imposed
under the Code will generally be allocated
in proportion to the imputed underpay-
ment from which it derives. Also, an ex-
pense arising from a substantial under-
statement of tax under section 6662(d) for
an imputed underpayment will generally
be allocated in proportion to the notional
income item to which it relates.
In situations in which the reviewed
year partner is not an adjustment year
partner, the successor rules in proposed
§ 1.704 –1(b)(1)(viii)(b) apply to the allo-
cation of these expenditures. Under those
rules, a partner admitted after the re-
viewed year will not ordinarily be allo-
cated any section 705(a)(2)(B) expendi-
ture in the adjustment year.
C.Partnership adjustments that do not
result in an imputed underpayment
The June 14 NPRM provides that the
rules under subchapter K apply in the case
of a partnership adjustment that does not
result in an imputed underpayment. See
proposed § 301.6225–3(c). Further, pro-
posed § 1.704 –1(b)(4)(xiii) ofthese regu-
lations provides that an allocation of an item
arising from a partnership adjustment that
does not result in an imputed underpayment
(as defined in proposed § 301.6225–1(c)(2))
does not have substantial economic effect
but will be deemed to be in accordance with
the partners’ interests in the partnership if it
is allocated in the manner in which the item
would have been allocated in the reviewed
year under the regulations under section
704, taking into account the successor rules
described in section (2)(B)(iv) of this pre-
amble.
3.Provisions Relating to Section 6226
A.In general
Section 6226(b) describes how partner-
ship adjustments are taken into account by
the reviewed year partners if a partnership
makes an election under section 6226(a).
Under section 6226(b)(1), each partner’s
tax imposed by chapter 1 of subtitle A of
the Code (chapter 1 tax) is increased by
the aggregate of the adjustment amounts
as determined under section 6226(b)(2).
This increase in chapter 1 tax is reported
on the return for the partner’s taxable
year that includes the date the statement
described under section 6226(a) is fur-
nished to the partner by the partnership
(reporting year). The aggregate of the
adjustment amounts is the aggregate of
the correction amounts. See proposed
§ 301.6226 –3(b).
The adjustment amounts determined
under section 6226(b)(2) fall into two cat-
egories. Under section 6226(b)(2)(A), in
the case of the taxable year of the partner
that includes the end of the partnership’s
reviewed year (first affected year), the ad-
justment amount is the amount by which
the partner’s chapter 1 tax would increase
for the partner’s first affected year if the
partner’s share of the adjustments were
taken into account in that year. Under
section 6226(b)(2)(B), in the case of any
taxable year after the first affected year,
and before the reporting year (that is, the
intervening years), the adjustment amount
is the amount by which the partner’s chapter
1 tax would increase by reason of the ad-
justment to tax attributes determined under
section 6226(b)(3) in each of the intervening
years. The adjustment amounts determined
under section 6226(b)(2)(A) and (B) are
added together to determine the aggregate of
the adjustment amounts for purposes of de-
termining additional reporting year tax,
which is the increase to the partner’s chapter
1 tax in accordance with section 6226(b)(1).
Section 6226(b)(3) provides two rules
regarding adjustments to tax attributes
that would have been affected if the part-
ner’s share of adjustments were taken into
account in the first affected year. First,
under section 6226(b)(3)(A), in the case
of an intervening year, any tax attribute
must be appropriately adjusted for pur-
poses of determining the adjustment
amount for that intervening year in accor-
dance with section 6226(b)(2)(B). Sec-
ond, under section 6226(b)(3)(B), in the
case of any subsequent taxable year (that
is, a year, including the reporting year,
that is subsequent to the intervening years
referenced in 6226(b)(3)(A)), any tax at-
tribute must be appropriately adjusted.
Under the June 14 NPRM, a reviewed
year partner’s share of the adjustments
that must be taken into account by the
reviewed year partner must be reported to
the reviewed year partner in the same
manner as originally reported on the re-
turn filed by the partnership for the re-
viewed year. See proposed § 301.6226 –
2(f). If the adjusted item was not reflected
in the partnership’s reviewed year return,
the adjustment must be reported in accor-
dance with the rules that apply with re-
spect to partnership allocations, including
under the partnership agreement. How-
ever, under proposed § 301.6226 –2(f)(1),
if the adjustments, as finally determined,
are allocated to a specific partner or in a
specific manner, the partner’s share of the
adjustment must follow how the adjust-
ment is allocated in that final determina-
tion.
Section 301.6226 – 4(b) of these pro-
posed regulations provides that the re-
viewed year partners or affected partners
(as described in § 301.6226 –3(e)(3)(i))
must take into account items of income,
gain, loss, deduction or credit with respect
to their share of the partnership adjust-
ments as contained on the statements
described in proposed § 301.6226 –2
(pushed-out items) in the reporting year
(as defined in proposed § 301.6226 –3(a)).
Similarly, partnerships adjust tax attri-
butes affected by reason of a pushed-out
February 20, 2018Bulletin No. 2018–8
366

item in the reviewed year. In the case of
a reviewed year partner that disposed of
its partnership interest prior to the re-
porting year, that partner may take into
account any outside basis adjustment
under these rules in an amended return
to the extent otherwise allowable under
the Code.
Unlike the proposed rules under sec-
tion 6225 and subchapter K described in
section 2 of this preamble, under section
6226, all tax attributes (as defined in pro-
posed § 301.6241–1(a)(10)) are adjusted
for pushed out items of income, gain, de-
duction, loss or credit.
B.Section 704(b)
Section (2)(B)(iii) of this preamble dis-
cusses the general mechanics of section
704(b). In accordance with the principles
set forth in section 704(b), an allocation of
a pushed-out item does not have substan-
tial economic effect within the meaning of
section 704(b)(2). However, the allocation
of such an item will be deemed to be in
accordance with the partners’ interests in
the partnership if it is allocated in the
adjustment year in the manner in which
the item would have been allocated under
the rules of section 704(b), including
§ 1.704 –1(b)(1)(i) (or otherwise taken
into account under subtitle A) in the re-
viewed year (as defined in proposed
§ 301.6241–1(a)(8)), followed by any
subsequent taxable years, concluding with
the adjustment year (as defined in pro-
posed § 301.6241–1(a)(1)). See proposed
§ 1.704 –1(b)(4)(xiv).
C.Timing
Under the June 14 NPRM, a reviewed
year partner that is furnished a statement
under proposed § 301.6226 –2 is re-
quired to pay any additional chapter 1
tax (additional reporting year tax) for
the partner’s taxable year which in-
cludes the date the statement was fur-
nished to the partner in accordance with
proposed § 301.6226 –2 (the reporting
year) that results from taking into ac-
count the adjustments reflected in the
statement. See proposed § 301.6226 –3.
The additional reporting year tax is the
aggregate of the adjustment amounts, as
determined in proposed § 301.6226 –
3(b) and described in (3)(A) of this pre-
amble.
A commenter recommended that ad-
justments to capital accounts and basis
should be made to the reviewed year part-
ners in the reviewed year to prevent dis-
tortions. This comment is not adopted be-
cause, in this context, section 6226 clearly
applies to the adjustment year. These pro-
posed regulations provide that adjust-
ments to partnership-level tax attributes
are calculated with respect to each year
beginning with the reviewed year, fol-
lowed by subsequent taxable years, con-
cluding with the adjustment year. See pro-
posed § 301.6226 – 4(b).
D.Effect of a payment by pass-through
partner
These proposed regulations provide
that to the extent a pass-through partner
(as defined in proposed § 301.6241–
1(a)(5)) makes a payment in lieu of issu-
ing statements to its owners described in
proposed § 301.6226 –3(e)(4), that pay-
ment will be treated similarly to the pay-
ment of an amount under subchapter C of
chapter 63 for purposes of any adjust-
ments tobases and capital accounts, and
accordingly, the rules contained in proposed
§ 301.6225– 4 will apply to determine any
appropriate adjustments to bases and capital
accounts. See proposed § 301.6226 –3(e).
To the extent that the pass-through partner
continues to push out the partnership adjust-
ments to its partners in accordance with
proposed § 301.6226 –3(e)(3), the partners
receiving those adjustments will adjust their
bases and capital accounts in accordance
with the guidance provided in proposed
§ 301.6226 – 4.
Comments are requested as to how S
corporations, trusts, and estates that are
pass-through partners that pay an amount
under proposed § 301.6226 –3(e), and
their shareholders and beneficiaries, re-
spectively, should take these payments
into account and adjust tax attributes.
Special Analyses
Certain IRS regulations, including this
one, are exempt from the requirements of
Executive Order 12866, as supplemented
and reaffirmed by Executive Order 13563.
Therefore, a regulatory impact assessment
is not required. Because the proposed reg-
ulations would not impose a collection of
information on small entities, the Regula-
tory Flexibility Act (5 U.S.C. chapter 6)
does not apply.
Pursuant to section 7805(f), this notice
of proposed rulemaking has been submit-
ted to the Chief Counsel for Advocacy of
the Small Business Administration for
comment on its impact on small business.
Statement of Availability of IRS
Documents
IRS Revenue Procedures, Revenue
Rulings, Notices and other guidance cited
in this preamble are published in the In-
ternal Revenue Bulletin (or Cumulative
Bulletin) and are available from the Su-
perintendent of Documents, U.S. Govern-
ment Publishing Office, Washington, DC
20402, or by visiting the IRS website at
http://www.irs.gov.
Comments and Requests for Public
Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any electronic and written
comments that are submitted timely to the
IRS as prescribed in this preamble under
the ADDRESSES heading. The Treasury
Department and the IRS request com-
ments on all aspects of the proposed rules.
All comments will be available at http://
www.regulations.gov or upon request. A
public hearing will be scheduled if re-
quested in writing by any person that
timely submits written comments. If a
public hearing is scheduled, then notice of
the date, time, and place for the public
hearing will be published in theFederal
Register.
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR parts 1 and 301
are proposed to be amended as follows:
PART 1—INCOME TAX
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805***
Par. 2. Section 1.704 –1 is amended by:
1. Adding paragraph (b)(1)(viii).
Bulletin No. 2018–8February 20, 2018
367

2. Adding a sentence to the end of para-
graph (b)(2)(iii)(a).
3. Adding paragraphs (b)(2)(iii)(f), (b)(2)
(iv)(i)(4), and (b)(4)(xi), (xii), (xiii),
(xiv), and (xv).
The additions read as follows:
§ 1.704 –1 Partner’s distributive share.
*****
(b)***
(1)***
(viii)Items relating to a final determi-
nation under the centralized partnership
audit regime—(a)In general. Certain
items of income, gain, loss, deduction or
credit may result from a final determina-
tion under subchapter C of chapter 63 of
the Internal Revenue Code (subchapter C
of chapter 63) (relating to the centralized
partnership audit regime). Special rules
under section 704(b) and § 1.704 –1(b)
apply to these items that take into account
that the item relates to the reviewed year
(as defined in § 301.6241–1(a)(8) of this
chapter) but occurs in the adjustment year
(as defined in § 301.6241–1(a)(1) of this
chapter). See paragraphs (b)(2)(iii)(a) and
(f), (b)(2)(iv)(i)(4), and (b)(4)(xi), (xii),
(xiii), (xiv), and (xv) of this section.
(b)Successors—(1)In general. In the
case of a transfer or liquidation of a part-
nership interest subsequent to a reviewed
year, a successor has the meaning pro-
vided in paragraph (b)(1)(viii)(b) of this
section. In the case of a subsequent trans-
fer by a successor of a partnership interest,
the principles of paragraph (b)(1)(viii)(b)
of this section will also apply to the new
successor.
(2)Identifiable transferee partner. Ex-
cept as otherwise provided in paragraph
(b)(1)(viii)(b)(3) of this section, in the
case of a transfer of all or part of a part-
nership interest during or subsequent to
the reviewed year, a successor is the part-
ner to which the reviewed year transferor
partner’s capital account carried over (or
would carry over if the partnership main-
tained capital accounts) under paragraph
(b)(2)(iv)(l) of this section (anidentifiable
transferee partner).
(3)Unidentifiable transferee partner.
If, after exercising reasonable diligence,
the partnership cannot determine an iden-
tifiable transferee partner under paragraph
(b)(1)(viii)(b)(2) of this section, each part-
ner in the adjustment year that is not an
identifiable transferee partner and was not
a partner in the reviewed year, (anuniden-
tifiable transferee partner) is a successor
to the extent of the proportion of its inter-
est in the partnership to the total interests
of unidentifiable transferee partners in the
partnership (considering all facts and cir-
cumstances).
(4)Liquidation of partnership interest.
In the case of a liquidation of a partner’s
entire interest in the partnership during or
subsequent to the reviewed year, the succes-
sors to the liquidated partner are certain
adjustment year partners (as defined in
§ 301.6241–1(a)(2) of this chapter) as pro-
vided in this paragraph (b)(1)(viii)(b)(4).
The determination of the extent to which the
adjustment year partners are treated as suc-
cessors under this section must be made in a
manner that reflects the extent to which the
adjustment year partners’ interests in the
partnership increased as a result of the liq-
uidating distribution (considering all facts
and circumstances).
(2)***
(iii)***
(a) * * *Notwithstanding any other
sentence of this paragraph (b)(2)(iii)(
a),
an allocation of any of the following will
be substantial only if the allocation is de-
scribed in paragraph (b)(2)(iii)(f) of this
section: an expenditure for any payment
required to be made by a partnership un-
der subchapter C of chapter 63 (relating to
the centralized partnership audit regime),
adjustments reflected on a statement fur-
nished to a pass-through partner (as de-
fined in § 301.6241–1(a)(5) of this chap-
ter) under § 301.6226 –3(e)(4) of this
chapter, or interest, penalties, additions to
tax, or additional amounts described in
section 6233.
*****
(f)Certain expenditures under the cen-
tralized partnership audit regime—(1)In
general. The economic effect of an allo-
cation of an expenditure for any payment
required to be made by a partnership un-
der subchapter C of chapter 63 (as de-
scribed in § 301.6241– 4(a) of this chap-
ter) is substantial only if the expenditure is
allocated in the manner described in this
paragraph (b)(2)(iii)(f). For partnerships
with allocations that do not satisfy para-
graph (b)(2)(ii) of this section, see para-
graph (b)(4)(xi) of this section.
(2)Expenditures for imputed underpay-
ments or similar amounts. Except as other-
wise provided, an expenditure for an im-
puted underpayment under § 301.6225–1 of
this chapter (or for an amount computed in
the same manner as an imputed underpay-
ment under § 301.6226 –3(e)(4)(iii) of this
chapter) is allocated to the reviewed year
partner (or its successor, as defined in para-
graph (b)(1)(viii)(b) of this section) in pro-
portion to the allocation of the notional item
(as described in § 301.6225– 4(b) of this
chapter) to which the expenditure relates,
taking into account modifications under
§ 301.6225–2 of this chapter attributable to
that partner.
(3)Interest, penalties, additions to tax,
or additional amounts described in sec-
tion 6233. An expenditure for interest,
penalties, additions to tax, or additional
amounts as determined under section
6233 (or penalties and interest described
in § 301.6226 –3(e)(4)(iv) of this chapter)
is allocated to the reviewed year partner
(or its successor, as defined in paragraph
(b)(1)(viii)(b) of this section) in propor-
tion to the allocation of the portion of the
imputed underpayment with respect to
which the penalty applies (or amount
computed in the same manner as an im-
puted underpayment under § 301.6226 –
3(e)(4) of this chapter) or related notional
item to which it relates (whichever is ap-
propriate), taking into account modifica-
tions under § 301.6225–2 of this chapter
attributable to that partner.
(4)Imputed underpayments unrelated
to notional items. In the case of an im-
puted underpayment that results from a
partnership adjustment for which no no-
tional items are created under § 301.6225–
4(b)(2) of this chapter, the expenditure
must be allocated to the reviewed year
partner (or its successor, as defined in
paragraph (b)(1)(viii)(b) of this section)
that would have borne the economic ben-
efit or burden of the partnership adjust-
ment if the partnership and its partners
had originally reported in a manner con-
sistent with the partnership adjustment
that resulted in the imputed underpayment
with respect to the reviewed year.
(iv)***
(i)***
(4)Certain expenditures under the cen-
tralized partnership audit regime. Notwith-
standing paragraph (b)(2)(iv)(i)(1) of this
February 20, 2018Bulletin No. 2018–8
368

section, the economic effect of an allocation
of an expenditure for any payment required
to be made by a partnership under subchap-
ter C of chapter 63 (as described in
§ 301.6241– 4(a) of this chapter) is substan-
tial only if the expenditure is allocated in the
manner described in paragraph (b)(2)(iii)(f)
of this section. For partnerships with alloca-
tions that do not satisfy paragraph (b)(2)(ii)
of this section, see paragraph (b)(4)(xii) of
this section.
*****
(4)***
(xi)Notional items under the central-
ized partnership audit regime. An alloca-
tion of a notional item (as described in
§ 301.6225– 4(b) of this chapter) does not
have substantial economic effect within
the meaning of paragraph (b)(2) of this
section. However, the allocation of a no-
tional item of income or gain described in
§ 301.6225– 4(b)(1)(ii) of this chapter, or
expense or loss described in § 301.6225–
4(b)(1)(iii) of this chapter, will be deemed
to be in accordance with the partners’
interests in the partnership if the notional
item is allocated in the manner in which
the corresponding actual item would have
been allocated in the reviewed year under
the rules of this section, treating succes-
sors (as defined in paragraph (b)(1)(viii)
(b) of this section) as reviewed year part-
ners. Additionally, the allocation of a no-
tional item of expense or loss described in
§ 301.6225– 4(b)(3)(iv) of this chapter, or
a notional item of income or gain de-
scribed in § 301.6225– 4(b)(3)(v) of this
chapter, will be deemed to be in accor-
dance with the partners’ interests in the
partnership if the notional item is allo-
cated to the reviewed year partners (or
their successors as defined in paragraph
(b)(1)(viii)(b) of this section) in the man-
ner in which the excess item was allocated
in the reviewed year.
(xii)Certain section 705(a)(2)(B) ex-
penditures under the centralized partner-
ship audit regime. An allocation of an
expenditure for any payment required to
be made by a partnership under subchap-
ter C of chapter 63 (relating to the cen-
tralized partnership audit regime and as
described in § 301.6241– 4(a) of this
chapter) will be deemed to be in accor-
dance with the partners’ interests in the
partnership, as provided in paragraph
(b)(3) of this section, only if the expendi-
ture is allocated in the manner described
in paragraph (b)(2)(iii)(f) of this section
and if the partners’ distribution rights are
reduced by the partners’ shares of the im-
puted underpayment.
(xiii)Partnership adjustments that do
not result in an imputed underpayment
under the centralized partnership audit
regime. An allocation of an item arising
from a partnership adjustment that does
not result in an imputed underpayment (as
defined in § 301.6225–1(c)(2) of this
chapter) does not have substantial eco-
nomic effect within the meaning of para-
graph (b)(2) of this section. However, the
allocation of such an item will be deemed
to be in accordance with the partners’
interests in the partnership if allocated
in the manner in which the item would
have been allocated in the reviewed year
under the rules of this section, treating
successors as defined in paragraph (b)
(1)(viii)(b) of this section as reviewed
year partners.
(xiv)Partnership adjustments subject
to an election under section 6226.An
allocation of an item arising from a part-
nership adjustment that results in an im-
puted underpayment for which an election
is made under § 301.6226 –1 of this chap-
ter does not have substantial economic ef-
fect within the meaning of paragraph (b)(2)
of this section. However, the allocation of
such an item will be deemed to be in accor-
dance with the partners’ interests in the part-
nership if allocated in the adjustment year
(as defined in § 301.6241–1(a)(1) of this
chapter) in the manner in which the item
would have been allocated under the rules
of this section (or otherwise taken into ac-
count under subtitle A of the Code) in the
reviewed year (as defined in § 301.6241–
1(a)(8) ofthis chapter), followed by any
subsequent taxable years, concluding
with the adjustment year (as defined in
§ 301.6241–1(a)(1) of this chapter).
(xv)Substantial economic effect under
sections 168(h) and 514(c)(9)(E)(i)(ll).
An allocation described in paragraphs
(b)(4)(xi) through (xiv) of this section will
be deemed to have substantial economic
effect for purposes of sections 168(h) and
514(c)(9)(E)(i)(ll) if the allocation is
deemed to be in accordance with the part-
ners’ interests in the partnership under the
applicable rules set forth in paragraphs
(b)(4)(xi) through (xiv) of this section.
*****
Par. 3. Section 1.705–1 is amended by
adding paragraph (a)(10) to read as fol-
lows:
§ 1.705–1 Determination of basis of
partner’s interest.
(a)***
(10) For rules relating to determining
the adjusted basis of a partner’s interest in
a partnership following a final determina-
tion under subchapter C of chapter 63 of
the Internal Revenue Code (relating to the
centralized partnership audit regime), see
§§ 301.6225– 4 and 301.6226 – 4 of this
chapter.
*****
Par. 4.Section 1.706 – 4 is amended
by redesignating paragraphs (e)(2)(viii)
through (xi) as paragraphs (e)(2)(ix)
through (xii), respectively, and adding a
new paragraph (e)(2)(viii) to read as fol-
lows:
§ 1.706 – 4 Determination of distributive
share when a partner’s interest varies.
*****
(e)***
(2)***
(viii) Any item arising from a final
determination under subchapter C of
chapter 63 of the Internal Revenue Code
(relating to the centralized partnership au-
dit regime) with respect to a partnership
adjustment resulting in an imputed under-
payment for which no election is made
under § 301.6226 –1 of this chapter.
*****
PART 301—PROCEDURE AND
ADMINISTRATION
Par. 5. The authority citation for part
301 continues to read in part as follows:
Authority: 26 U.S.C. 7805***
Par 6. Section 301.6225–3 as proposed
to be amended at 82 FR 27334 (June 14,
2017) is further amended by revising
paragraph (b)(4) to read as follows:
§ 301.6225–3 Treatment of partnership
adjustments that do not result in an
imputed underpayment.
*****
(b) ***
Bulletin No. 2018–8February 20, 2018
369

(4)Reallocation adjustments. A part-
nership adjustment that does not result in
an imputed underpayment pursuant to
§ 301.6225–1(c)(2)(i) is taken into ac-
count by the partnership in the adjustment
year as a separately stated item or a non-
separately stated item, as required by sec-
tion 702. The portion of an adjustment
allocated under this paragraph (b)(4) is
allocated to adjustment year partners (as
defined in § 301.6241–1(a)(2)) who are
also reviewed year partners (as defined in
§ 301.6241–1(a)(9)) with respect to whom
the amount was reallocated.
*****
Par. 7. Section 301.6225– 4 is added to
read as follows:
§ 301.6225– 4 Effect of a partnership
adjustment on specified tax attributes of
partnerships and their partners.
(a)Adjustments to specified tax attri-
butes—(1)In general. When there is a
partnership adjustment (as defined in
§ 301.6241–1(a)(6)), the partnership and
its adjustment year partners (as defined in
§ 301.6241–1(a)(2)) generally must adjust
their specified tax attributes (as defined in
paragraph (a)(2) of this section) in accor-
dance with the rules in this section. For a
partnership adjustment that results in an
imputed underpayment (as defined in
§ 301.6241–1(a)(3)), specified tax attri-
butes are generally adjusted by making
appropriate adjustments to the book value
and basis of partnership property under
paragraph (b)(2) of this section, creating
notional items based on the partnership
adjustment under paragraph (b)(3) of this
section, allocating those notional items as
described in paragraph (b)(5) of this sec-
tion, and determining the effect of those
notional items for the partnership and its
reviewed year partners (as defined in
§ 301.6241–1(a)(9)) or their successors
(as defined in § 1.704 –1(b)(1)(viii)(b)of
this chapter) under paragraph (b)(6) of
this section. Paragraph (c) of this section
describes how to treat an expenditure for
any payment required to be made by a
partnership under subchapter C of chapter
63 of the Internal Revenue Code (sub-
chapter C ofchapter 63) including any im-
puted underpayment. Paragraph (d) of this
section describes adjustments to tax attri-
butes in the case of a partnership adjustment
that does not result in an imputed underpay-
ment (as described in § 301.6225–1(c)(2)).
(2)Specified tax attributes. Specified
tax attributes are the tax basis and book
value of a partnership’s property, amounts
determined under section 704(c), adjust-
ment year partners’ bases in their partner-
ship interests, and adjustment year part-
ners’ capital accounts determined and
maintained in accordance with § 1.704 –
1(b)(2) of this chapter.
(3)Timing. Adjustments to specified
tax attributes under this section are made
in the adjustment year (as defined in
§ 301.6241–1(a)(1)). Thus, to the extent
that an adjustment to a specified tax attri-
bute under this section is reflected on a
federal tax return, the partnership adjust-
ment is generally first reflected on any
return filed with respect to the adjustment
year.
(4)Effect of other sections. The deter-
mination of specified tax attributes under
this section is not conclusive as to tax
attributes determined under other sections
of the Internal Revenue Code (Code), in-
cluding the centralized partnership audit
regime. For example, a partnership that
files an administrative adjustment request
(AAR) under section 6227 adjusts tax at-
tributes as appropriate. Further, to the ex-
tent a partner or partnership appropriately
adjusted tax attributes prior to a final de-
termination under subchapter C of chapter
63 with respect to a partnership adjust-
ment (for example, in the context of an
amended return modification described in
§ 301.6225–2(d)(2) or a closing agree-
ment described in § 301.6225–2(d)(8)),
those tax attributes are not adjusted under
this section. Similarly, to the extent a part-
ner filed a return inconsistent with the
treatment of items on a partnership return,
a reviewed year partner (or its successor)
does not adjust tax attributes to the extent
the partner’s prior return was consistent
with the partnership adjustment. For the
rules regarding consistent treatment by
partners, see § 301.6222–1.
(5)Election under section 6226—(i) In
general. Except as otherwise provided in
paragraph (a)(5)(ii) of this section, tax
attributes are adjusted for a partnership
adjustment that results in an imputed un-
derpayment with respect to which an elec-
tion is made under § 301.6226 –1 in ac-
cordance with § 301.6226 – 4, and not the
rules of this section.
(ii)Pass-through partners and indirect
partners. A pass-through partner (as de-
fined in § 301.6241–1(a)(5)) that is a part-
nership and pays an amount under
§ 301.6226 –3(e)(4) treats its share of each
partnership adjustment reflected on the
relevant statement as a partnership adjust-
ment described in paragraph (a)(1) of this
section, treats the amount computed in the
same manner as an imputed underpay-
ment under § 301.6226 –3(e)(4)(iii) as an
imputed underpayment determined under
§ 301.6225–1 for purposes of § 1.704 –
1(b)(2)(iii)(a) and (f) of this chapter, treats
items arising from an adjustment that does
not result in an imputed underpayment as
an item under paragraph (d) of this sec-
tion, and finally treats amounts with re-
spect to any penalties, additions to tax,
and additional amounts and interest com-
puted as an amount described in § 1.704 –
1(b)(2)(iii)(f)(3) of this chapter.
(6)Reflection of economic arrange-
ment. This section and the rules in
§ 1.704 –1(b)(1)(viii), (b)(2)(iii)(a) and
(f), (b)(2)(iv)(i)(4), and (b)(4)(xi), (xii),
(xiii), (xiv), and (xv) of this chapter must
be interpreted in a manner that reflects the
economic arrangement of the parties and
the principles of subchapter K of the
Code, taking into account the rules of the
centralized partnership audit regime.
(b)Adjusting specified tax attributes in
the case of a partnership adjustment that
results in an imputed underpayment—(1)
In general. This paragraph (b) applies
with respect to each partnership adjust-
ment that was taken into account in the
calculation of the imputed underpayment
under § 301.6225–1(c).
(2)Book value and basis of partner-
ship property—Partnership-level specified
tax attributes must be adjusted under this
paragraph (b)(2). Specifically, the partner-
ship must make appropriate adjustments
to the book value and basis of property to
take into account any partnership adjust-
ment. No adjustments are made with re-
spect to property that was held by the
partnership in the reviewed year but is no
longer held by the partnership in the ad-
justment year. Amounts determined under
section 704(c) must also be adjusted to
take into account the partnership adjust-
ment.
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370

(3)Creation of notional items based on
partnership adjustment—(i) In general.In
order to give appropriate effect to each
partnership adjustment for partner-level
specified tax attributes, notional items are
created with respect to each partnership
adjustment, except as provided in para-
graph (b)(4) of this section.
(ii)Increase in income or gain.Inthe
case of a partnership adjustment that is an
increase to income or gain, a notional item
of income or gain is created in an amount
equal to the partnership adjustment.
(iii)Increase in expense or loss. In the
case of a partnership adjustment that is an
increase to an expense or a loss, a notional
item of an expense or loss is created in an
amount equal to the partnership adjust-
ment.
(iv)Decrease in income or gain.Inthe
case of a partnership adjustment that is a
decrease to income or gain, a notional
item of expense or loss is created in an
amount equal to the partnership adjust-
ment.
(v)Decrease in expense or loss. In the
case of a partnership adjustment that is a
decrease to an expense or to a loss, a
notional item of income or gain is created
in an amount equal to the partnership ad-
justment.
(vi)Credits. If a partnership adjustment
reflects a net increase or net decrease in
credits as determined under § 301.6225–
1(d), the partnership may have one or more
notional items of income, gain, loss, or de-
duction that reflects the change in the item
that gives rise to the credit, and those items
are treated as items in paragraph (b)(3)(ii),
(iii), (iv), or (v) of this section. For example,
if a partnership adjustment is to a credit, a
notional item of deduction may be created
when appropriate. See section 280C.
(4)Situations in which notional items
are not created—(i)In general. In the
case of a partnership adjustment described
in this paragraph (b)(4), or when the cre-
ation of a notional item would duplicate a
specified tax attribute or an actual item
alreadytaken into account, notional items
are not created. Nevertheless, in these situ-
ations specified tax attributes are adjusted
for the partnership and its reviewed year
partners or their successors (as defined in
§ 1.704 –1(b)(i)(viii)(b) of this chapter) in a
manner that is consistent with how the part-
nership adjustment would have been taken
into account under the partnership agree-
ment in effect for the reviewed year taking
into account all facts and circumstances. See
§ 1.704 –1(b)(2)(iii)(f)(4) of this chapter for
rules for allocating the expenditure for an
imputed underpayment in these circum-
stances.
(ii)Adjustments for non-section 704(b)
items. Notional items are not created for a
partnership adjustment that does not de-
rive from items that would have been al-
located in the reviewed year under section
704(b). See paragraph (e) of this section,
Example 5.
(iii)Section 705(a)(2)(B) expenditures.
Notional items are not created for a partner-
ship adjustment that is a change of an item
of deduction to a section 705(a)(2)(B) ex-
penditure.
(iv)Tax-exempt income. Notional
items are not created for a partnership
adjustment to an item of income of a
partnership exempt from tax under subti-
tle A of the Code.
(5)Allocation of the notional items.
Notional items are allocated to the re-
viewed year partners or their successors
under § 1.704 –1(b)(4)(xi) of this chapter.
(6)Effect of notional items—(i)In gen-
eral. The partnership creates notional
items of income, gain, loss, deduction, or
credit in order to make appropriate adjust-
ments to specified tax attributes. See para-
graph (e) of this section,Example 1.
(ii)Partner capital accounts. For pur-
poses of capital accounts determined and
maintained in accordance with § 1.704 –
1(b)(2) of this chapter, a notional item of
income, gain, loss, deduction or credit is
treated as an item of income, gain, loss,
deduction or credit (including for pur-
poses of determining book value). Similar
adjustments may be appropriate for part-
nerships that do not determine and main-
tain capital accounts in accordance with
§ 1.704 –1(b)(2) of this chapter.
(iii)Partner’s basis in its interest—(A)
In general. Except as otherwise provided,
the basis of a partner’s interest in a part-
nership is adjusted (but not below zero) to
reflect any notional item allocated to the
partner by treating the notional item as an
item described in section 705(a).
(B)Special basis rules. The basis of a
partner’s interest in a partnership is not
adjusted for any notional items allocated
to the partner —
(1) When a partner that is not a tax-
exempt entity (as defined in § 301.6225–
2(d)(3)(iii)) is a successor under § 1.704 –
1(b)(1)(viii)(b) of this chapter to a reviewed
year tax-exempt partner (as defined in
§ 301.6225–2(d)(3)(iii)), to the extent that
the IRS approved a modification under
§ 301.6225–2 because the tax-exempt part-
ner was not subject to tax; or
(2) When the notional item would be
allocated to a successor that is related
(within the meaning of sections 267(b) or
707(b)) to the reviewed year partner, the
successor acquired its interest from the
reviewed year partner in a transaction (or
series of transactions) in which not all
gain or loss is recognized during an ad-
ministrative adjustment proceeding with
respect to the partnership’s reviewed year
under subchapter C of chapter 63, and a
principal purpose of the interest transfer
(or transfers) was to shift the economic
burden of the imputed underpayment
among the related parties.
(c)Determining a partner’s share of an
expenditure for any payment required to be
made by a partnership under subchapter C
of chapter 63. Payment by a partnership of
any amount required to be paid under sub-
chapter C of chapter 63 as described in
§ 301.6241– 4(a) is treated as an expenditure
described in section 705(a)(2)(B). Rules for
determining whether the economic effect of
an allocation of these expenses is substantial
are provided in § 1.704 –1(b)(2)(iii)(f)of
this chapter and rules for determining
whether an allocation of these expenses is
deemed to be in accordance with the part-
ners’ interests in the partnership are pro-
vided in § 1.704 –1(b)(4)(xii) of this chapter.
(d)Adjusting tax attributes for a part-
nership adjustment that does not result in
an imputed underpayment. The rules un-
der subchapter K of the Code apply in the
case of apartnership adjustment that does
not result in an imputed underpayment. See
§ 301.6225–3(c). Accordingly, tax attributes
(as defined in § 301.6241–1(a)(10)) are ad-
justed under those rules. An item arising
from a partnership adjustment that does not
result in an imputed underpayment (as de-
fined in § 301.6225–1(c)(2)) is allocated
under § 1.704 –1(b)(4)(xiii) of this chapter.
(e)Examples. The following examples
illustrate the rules of this section. For pur-
poses of these examples, unless otherwise
stated, Partnership is subject to the provi-
Bulletin No. 2018–8February 20, 2018
371

sions of subchapter C of chapter 63, Part-
nership and its partners are calendar year
taxpayers, all partners are U.S. persons,
and the highest rate of income tax in effect
for all taxpayers is 40 percent for all rel-
evant periods.
Example 1. (i) In 2019, A, B, and C are individ-
uals that form Partnership. A contributes Whiteacre,
which is unimproved land with an adjusted basis of
$400 and a fair market value of $1000, and B and C
each contribute $1000 in cash. The partnership
agreement provides that all income, gain, loss, and
deduction will be allocated in equal 1/3 shares
among the partners. The partnership agreement also
provides that the partners’ capital accounts will be
determined and maintained in accordance with
§ 1.704 –1(b)(2)(iv) of this chapter, distributions in
liquidation of the partnership (or any partner’s inter-
est) will be made in accordance with the partners’
positive capital account balances, and any partner
with a deficit balance in his capital account follow-
ing the liquidation of his interest must restore that
deficit to the partnership (as provided in § 1.704 –
1(b)(2)(ii)(b)(2) and (3) of this chapter).
(ii) Upon formation, Partnership has the follow-
ing assets and capital accounts:
PartnershipOutside BasisBookValue
BasisBookValue
Cash$2000$2000$2000A$400$1000$1000
Whiteacre40010001000B100010001000
C100010001000
Totals240030003000240030003000
(iii) In 2019, Partnership makes a $120 payment
for Asset that it treats as a deductible expense on its
partnership return.
PartnershipOutside BasisBookValue
BasisBookValue
Cash$1880$1880$1880A$360$960$1000
Whiteacre40010001000B9609601000
Asset00120C9609601000
Totals228028803000228028803000
(iv)Partnership does not file an AAR for 2020. The
IRS determines in 2021 (the adjustment year) that
Partnership’s $120 expenditure was not allowed as a
deduction in 2019 (the reviewed year), but rather was
the acquisition of an asset for which cost recovery
deductions are unavailable. Accordingly, the IRS
makes a partnership adjustment that disallows the en-
tire $120 deduction, which results in an imputed un-
derpayment of $48 ($120 x 40 percent). Partnership
does not request modification under § 301.6225–2.
Partnership pays the $48 imputed underpayment.
(v) Partnership first determines its tax attribute
adjustments resulting from the partnership adjust-
ment by applying paragraph (b) of this section. Pur-
suant to paragraph (b)(2)(i) of this section, Partner-
ship must re-state the basis and book value of Asset
to $120. Further, pursuant to paragraph (b)(3)(ii) of
this section, a $120 notional item of income is cre-
ated. The $120 item of notional income is allocated
in equal shares ($40) to A, B, and C in 2021 under
§ 1.704 –1(b)(4)(xi) of this chapter. Accordingly, in
2021 Partnership increases the capital accounts of A,
B, and C by $40 each, and increases A, B, and C’s
outside bases by $40 each under paragraph (b)(5)(ii)
and (iii) of this section, respectively.
(vi) As described in paragraph (c) of this section,
Partnership’s payment of the $48 imputed underpay-
ment is treated as an expenditure described in section
705(a)(2)(B) under § 301.6241– 4. Under § 1.704 –
1(b)(4)(xii) of this chapter, Partnership determines
each partner’s properly allocable share of this expen-
diture in 2021 by allocating the expenditure in pro-
portion to the allocations of the notional item to
which the expenditure relates. Accordingly, each of
A, B, and C have a properly allocable share of $16
each, which is the same proportion (1/3 each) in
which A, B, and Cshare the $120 item of notional
income. Thus, A, B and C’s capital accounts are each
decreased by $16 in 2021 and A, B and C’s outside
bases are each decreased by $16 in 2021. The alloca-
tion of the expenditure under the partnership agreement
has economic effect under § 1.704 –1(b)(2)(ii) of this
chapter and, because the allocation of the expenditure is
determined in accordance with § 1.704 –1(b)(2)(iii)(f)
of this chapter, the economic effect of these allocations
is deemed to be substantial.
(vii) The payment is also reflected by a $48
decrease in partnership cash for book purposes under
§ 1.704 –1(b)(4)(ii) of this chapter. Therefore, in
2021, A’s basis in Partnership is $384 and his capital
account is $984. B and C each have a basis and
capital account of $984.
PartnershipOutside BasisBookValue
BasisBookValue
Cash$1832$1832$1832A$384$984$ 984
Whiteacre40010001000B984984984
Asset120120120C984984984
Totals235229522952235229522952
February 20, 2018Bulletin No. 2018–8
372

Example 2. (i) The facts are the same as in
Example 1of this paragraph (e), except the IRS
approves modification under § 301.6225–2(d)(3)
with respect to A, which is a tax-exempt entity, and
under § 301.6225–2(d)(4) with respect to C, which is
a corporation subject to a tax rate of 35%. These
modifications reduce Partnership’s overall imputed
underpayment from $48 to $30.
(ii) As inExample 1of this paragraph (e), Part-
nership determines its tax attribute adjustments re-
sulting from the partnership adjustment by applying
paragraph (b) of this section. Pursuant to paragraph
(b)(3)(ii) of this section, a $120 notional item of
income is created. The $120 item of notional income
is allocated in equal shares ($40) to A, B, and C in
2021 under § 1.704 –1(b)(4)(xi) of this chapter. Ac-
cordingly, in 2021 Partnership increases the capital
accounts of A, B, and C by $40 each, and increases
A, B, and C’s outside bases by $40 each under
paragraph (b)(5) (ii) and (iii) of this section, respec-
tively.
(iii) However, the modifications affect how Part-
nership must allocate the imputed underpayment ex-
penditure among A, B, and C in 2021 (the adjust-
ment year) pursuant to § 1.704 –1(b)(2)(iii)(f) of this
chapter. Specifically, Partnership allocates the $30
expenditure in 2021 in proportion to the allocation of
the notional item to which it relates (which is 1/3
each as inExample 1of this paragraph (e)), but it
must also take into account modifications attribut-
able to each partner. Accordingly, B’s allocation is
$16 (its share of the imputed underpayment, for
which no modification occurred), and A and C have
properly allocable shares of $0 and $14, respectively
(their shares, taking into account modification).
Thus, A’s capital account is decreased by $0, B’s
capital account is decreased by $16, and C’s capital
account is decreased by $14 in 2021 and their re-
spective outside bases are decreased by the same
amounts in 2021.
(iv) The payment is also reflected by a $30
decrease in partnership cash for book purposes.
Therefore, in 2021, A’s basis in Partnership is $400
and his capital account is $1000, B’s basis and
capital account are both $984, and C’s basis and
capital account are both $986.
PartnershipOutside BasisBookValue
BasisBookValue
Cash$1850$1850$1850A$400$1000$1000
Whiteacre40010001000B984984984
Asset120120120C986986986
Totals237029702970Totals237029702970
Example 3. The facts are the same as inExam-
ple 1of this paragraph (e). However, in 2020, C
transfers its entire interest in Partnership to D (an
individual) for cash. Under § 1.704 –1(b)(2)(iv)(l)
of this chapter, C’s capital account carries over to
D. In 2021, the year the IRS determines that
Partnership’s $120 expense is not allowed as a
deduction, D is C’s successor under § 1.704 –
1(b)(1)(viii)(b)(2) of this chapter with respect to
specified tax attributes and the payment of the
imputed underpayment treated as an expenditure
under section 705(a)(2)(B).
Example 4. The facts are the same as inEx-
ample 1of this paragraph (e), except that the
partnership agreement provides that the section
705(a)(2)(B) expenditure for imputed underpay-
ments made by the partnership are specially allo-
cated to A (all other items continue to be allocated
in equal shares). Accordingly, in 2021, the section
705(a)(2)(B) expenditure is allocated entirely to
A, which reduces its capital account by $120,
which has economic effect under § 1.704 –
1(b)(2)(ii) of this chapter. However, the economic
effect of this allocation is not substantial under
§ 1.704 –1(b)(2)(iii)(a) of this chapter because it is
not allocated in the manner described in § 1.704 –
1(b)(2)(iii)(f) of this chapter. Theallocation will
also not be deemed to be in accordance with the part-
ners’ interests in the partnership under § 1.704 –
1(b)(3)(ix) of this chapter because it is not allocated
pursuant to the rules under § 1.704 –1(b)(4)(xii) of this
chapter.
Example 5. (i) In 2019, Partnership has two part-
ners, A and B. Both A and B have a $0 basis in their
interests in Partnership. Further, Partnership has a
$200 liability as defined in § 1.752–1(a)(4) of this
chapter. The liability is treated as a nonrecourse
liability as defined in § 1.752–1(a)(2) of this chap-
ter so that A and B both are treated as having a
$100 share of the liability under § 1.752–3 of this
chapter. In 2021 (the adjustment year), the IRS
determines that the liability was inappropriately
classified as a nonrecourse liability, should have
been classified as a recourse liability as defined in
§ 1.752–1(a)(1) of this chapter, and that A should
have no share of the recourse liability under
§ 1.752–2 of this chapter. As a result of the
liability misclassification, the IRS assesses an im-
puted underpayment of $40 ($100 x 40%) result-
ing from the $100 decrease in A’s share of part-
nership liabilities under §§ 1.752–1(c) and 1.731–
1(a)(1)(i) of this chapter. Partnership does not
request modification under § 301.6225–2. Partner-
ship pays the $40 imputed underpayment.
(ii) Pursuant to paragraph (b)(4)(ii) of this of this
section, notional items are not created with respect to
this partnership adjustment. Instead, under paragraph
(b)(4)(i) of this section, specified tax attributes are
adjusted in a manner that is consistent with how the
partnership adjustment would have been taken into
account under the partnership agreement in effect for
the reviewed year taking into account all facts and
circumstances. In this case, no specified tax attributes
are adjusted.
(iii) However, because A would have borne the
economic burden of the partnership adjustment if the
partnership and its partners had originally reported in
a manner consistent with the partnership adjustment,
the $40 imputed underpayment section 705(a)(2)(B)
expenditure is allocated to A under § 1.704 –
1(b)(2)(iii)(f)(4) of this chapter.
(f)Applicability date—(1)In general.
Except as provided in paragraph (f)(2) of
this section, this section applies to part-
nership taxable years beginning after De-
cember 31, 2017.
(2)Election under § 301.9100–22T in
effect. This section applies to any partner-
ship taxable year beginning after Novem-
ber 2, 2015 and before January 1, 2018 for
which a valid election under § 301.9100 –
22T is in effect.
Par. 8. Section 301.6226 – 4 is added to
read as follows:
§ 301.6226 – 4 Effect of a partnership
adjustment on tax attributes of
partnerships and their partners.
(a)Adjustments to tax attributes—(1)
In general. When a partnership adjust-
ment (as defined in § 301.6241–1(a)(6)) is
taken into account by the reviewed year
partners (as defined in § 301.6241–
1(a)(9)) or affected partners (as described
in § 301.6226 –3(e)(3)(i)) pursuant to an
election made by a partnership under
§ 301.6226 –1, the partnership and its re-
viewed year partners or affected partners
must adjust their tax attributes (as defined
in § 301.6241–1(a)(10)) in accordance
with the rules in this section.
(2)Application to pass-through part-
ners and indirect partners. To the extent a
pass-throughpartner(asdefinedin
§ 301.6241–1(a)(5)) pays an amount com-
puted in the same manner as an imputed
underpayment under § 301.6226 –3(e)(4)
(iii) (paying partnership), the paying part-
Bulletin No. 2018–8February 20, 2018
373

nership and its affected partners (as de-
fined in § 301.6226 –3(e)(3)(i)) or their
successors must make adjustments to their
tax attributes in accordance with the rules
in § 301.6225– 4.
(3)Allocation of partnership adjust-
ments. Partnership adjustments are allo-
cated to the reviewed year partners or
affected partners under § 1.704 –1(b)(4)
(xiv) of this chapter.
(b)Adjusting tax attributes when an
election under section 6226 is made. For
partnership adjustments that are taken into
account by the reviewed year partners or
affected partners because an election is
made under § 301.6226 –1, each partner’s
share of the partnership adjustments are
determined under § 301.6226 –2(f). Ac-
cordingly, the reviewed year partners or
affected partners must take into account
items of income, gain, loss, deduction or
credit with respect to their share of the
partnership adjustments as reflected on the
statements described in § 301.6226 –2 or
§ 301.6226 –3(e)(3) (pushed-out items)
in the reporting year (as defined in
§ 301.6226 –3(a)). Similarly, partnerships
adjust tax attributes affected by reason of
a pushed-out item in the adjustment year
(as defined in § 301.6241–1(a)(1)), but
these adjustments are calculated with re-
spect to each year beginning with the re-
viewed year (as defined in § 301.6241–
1(a)(8)), followed by any subsequent
taxable years, concluding with the adjust-
ment year (as defined in § 301.6241–
1(a)(1)).
(c)Example. The following example
illustrates the rules of this section. For
purposes of this example, Partnership is
subject to the provisions of subchapter C
of chapter 63 of the Internal Revenue
Code, Partnership and its partners are cal-
endar year taxpayers, all partners are U.S.
persons, and the highest rate of income tax
in effect for all taxpayers is 40% for all
relevant periods.
Example. (i) In 2021, J, K and L form Partner-
ship by each contributing $500 in exchange for part-
nership interests that share all items of income, gain,
loss and deduction in identical shares. Partnership
immediately purchases Asset on January 1, 2021 for
$1500, which it depreciates using the straight-line
method with a 10-year recovery period beginning in
2021 ($150) so that each partner has a $50 distrib-
utive share of the depreciation, resulting in an out-
side basis of $450 for each partner. Accordingly, at
the end of 2022, J, K and L have an outside basis and
capital account of $400 each ($500 less $50 of their
respective allocable shares of depreciation in 2021
and $50 in 2022).
PartnershipOutside BasisBookValue
BasisBookValue
Asset$1200$1200$1500J$400$400$500
K400400500
L400400500
Totals120012001500120012001500
(ii) The IRS initiates an administrative proceed-
ing with respect to Partnership’s 2021 taxable year
(reviewed year) in 2023 (adjustment year) and de-
termines that Asset should have been depreciated
with a 20-year recovery period beginning in 2021,
resulting in a $75 partnership adjustment that results
in an imputed underpayment. The IRS does not
initiate an administrative proceeding with respect to
Partnership’s 2022 taxable year, and Partnership
does not file an administrative adjustment request for
that taxable year. Partnership makes an election un-
der § 301.6226 –1 with respect to the imputed un-
derpayment. Therefore, J, K and L each are fur-
nished a statement described in § 301.6226 –2 by
Partnership reflecting the $25 income adjustment for
2021. Pursuant to § 301.6226 –2(e)(6), the statement
furnished by Partnership to J, K, and L also reflects
a $25 income adjustment to the 2022 intervening
year.
(iii) Tax attributes must be adjusted to reflect the
$75 pushed-out item of income that is taken into
account in equal shares ($25) by J, K, and L with
respect to 2021. Specifically, J, K and L’s outside
bases and capital accounts must be increased $25
each with respect to the 2021 tax year. Additionally,
tax attributes must be adjusted with respect to 2022,
as an intervening year. Specifically, J, K and L must
increase their outside bases and capital accounts by
$25 each with respect to the 2022 tax year. As a
result, J, K and L each have an outside basis and
capital account of $425 ($400 minus $25 of depre-
ciation for 2023 plus $25 of income realized with
respect to 2021 plus $25 of income realized with
respect to 2022). Asset’s basis and book value must
also be changed in 2023. Thus, after adjusting tax
attributes to take into account the election under
§ 301.6225–1 and taking into account other activities
of Partnership in 2023, accounts are stated as fol-
lows:
PartnershipOutside BasisBookValue
BasisBookValue
Asset$1275$1275$1500J$425$425$500
K425425500
L425425500
Totals127512751500127512751500
February 20, 2018Bulletin No. 2018–8
374

(d)Applicability date—(1)In general.
Except as provided in paragraph (d)(2) of
this section, this section applies to partner-
ship taxable years beginning after Decem-
ber 31, 2017.
(2)Election under § 301.9100–22T in ef-
fect. This section applies to any partnership
taxable year beginning after November 2,
2015 and before January 1, 2018 for which a
valid election under § 301.9100 –22T is in
effect.
Kirsten Wielobob,
Deputy Commissioner for Services and
Enforcement.
(Filed by the Office of the Federal Register on February 1,
2018, 8:45 a.m., and published in the issue of the Federal
Register for February 2, 2018, 83 F.R. 4868)
Bulletin No. 2018–8February 20, 2018
375

Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the
effect:
Amplifieddescribes a situation where
no change is being made in a prior pub-
lished position, but the prior position is
being extended to apply to a variation of
the fact situation set forth therein. Thus, if
an earlier ruling held that a principle ap-
plied to A, and the new ruling holds that
the same principle also applies to B, the
earlier ruling is amplified. (Compare with
modified, below).
Clarifiedis used in those instances
where the language in a prior ruling is
being made clear because the language
has caused, or may cause, some confu-
sion. It is not used where a position in a
prior ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.
Modifiedis used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A
and B, the prior ruling is modified because
it corrects a published position. (Compare
withamplifiedandclarified, above).
Obsoleteddescribes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used in
a ruling that lists previously published rul-
ings that are obsoleted because of changes
in laws or regulations. A ruling may also
be obsoleted because the substance has
been included in regulations subsequently
adopted.
Revokeddescribes situations where the
position in the previously published ruling
is not correct and the correct position is
being stated in a new ruling.
Supersededdescribes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a pe-
riod of time in separate rulings. If the new
ruling does more than restate the sub-
stance of a prior ruling, a combination of
terms is used. For example,modifiedand
supersededdescribes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previously
published ruling in a new ruling that is
self contained. In this case, the previously
published ruling is first modified and then,
as modified, is superseded.
Supplementedis used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names
in subsequent rulings. After the original
ruling has been supplemented several
times, a new ruling may be published that
includes the list in the original ruling and
the additions, and supersedes all prior rul-
ings in the series.
Suspendedis used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.
Abbreviations
The following abbreviations in current
use and formerly used will appear in ma-
terial published in the Bulletin.
A—Individual.
Acq.—Acquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Cooperative.
Ct.D.—Court Decision.
CY—County.
D—Decedent.
DC—Dummy Corporation.
DE—Donee.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Employer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduciary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor.
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE
—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Transferee.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpayer.
TR—Trust.
TT—Trustee.
U.S.C.—United States Code.
X—Corporation.
Y—Corporation.
Z—Corporation.
Bulletin No. 2018–8February 20, 2018
i

Numerical Finding List
1
Bulletin 2018 –1 through 2018 – 8
Notices:
2018-01, 2018-3 I.R.B.285
2018-02, 2018-2 I.R.B.281
2018-03, 2018-2 I.R.B.285
2018-05, 2018-6 I.R.B.341
2018-06, 2018-3 I.R.B.300
2018-07, 2018-4 I.R.B.317
2018-08, 2018-7 I.R.B.352
2018-10, 2018-8 I.R.B.359
2018-13, 2018-6 I.R.B.341
2018-14, 2018-7 I.R.B.353
Proposed Regulations:
REG-119514-15, 2018-04 I.R.B.325
REG-118067-17, 2018-08 I.R.B.360
Revenue Procedures:
2018-1, 2018-1 I.R.B.1
2018-2, 2018-1 I.R.B.106
2018-3, 2018-1 I.R.B.130
2018-4, 2018-1 I.R.B.146
2018-5, 2018-1 I.R.B.244
2018-7, 2018-1 I.R.B.282
2018-8, 2018-2 I.R.B.286
2018-9, 2018-2 I.R.B.290
2018-10, 2018-7 I.R.B.355
2018-11, 2018-5 I.R.B.334
2018-12, 2018-6 I.R.B.349
2018-13, 2018-7 I.R.B.356
Revenue Rulings:
2018-01, 2018-2 I.R.B.275
2018-02, 2018-2 I.R.B.277
2018-03, 2018-2 I.R.B.278
2018-04, 2018-4 I.R.B.304
2018-05, 2018-6 I.R.B.339
Treasury Decisions:
9829, 2018-04 I.R.B.308
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2017–27 through 2017–52 is in Internal Revenue Bulletin
2017–52, dated December 27, 2017.
February 20, 2018Bulletin No. 2018–8
ii

Finding List of Current Actions on
Previously Published Items
1
Bulletin 2018 –1 through 2018 – 8
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2017–27 through 2017–52 is in Internal Revenue Bulletin
2017–52, dated December 27, 2017.
Bulletin No. 2018–8February 20, 2018
iii

INTERNAL REVENUE BULLETIN
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