[Code of Federal Regulations]
[Title 26, Volume 18]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR301.6222(a)-2]

[Page 163-164]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 301_PROCEDURE AND ADMINISTRATION--Table of Contents
 
                               Assessment
 
Sec. 301.6222(a)-2  Application of consistent reporting and notification 
rules to indirect partners.

    (a) In general. The consistent reporting requirement of Sec. 
301.6222(a)-1 is generally applied with respect to the source 
partnership. For purposes of this section, the term source partnership 
means the partnership (within the meaning of section 6231(a)(1)) from 
which the partnership item originates.
    (b) Indirect partner files consistently with source partnership. An 
indirect partner who treats an item from a source partnership in a 
manner consistent with the treatment of that item on the source 
partnership's return satisfies the consistency requirement of section 
6222(a) regardless of whether the indirect partner treats that item in a 
manner consistent with the treatment of that item by the pass-thru 
partner through which the indirect partner holds the interest in the 
source partnership. Under these circumstances, therefore, the Internal 
Revenue Service shall not send to the indirect partner the notice 
described in section 6231(b)(1)(A).
    (c) Indirect partner files inconsistently with source partnership--
(1) Indirect partner notifies the Internal Revenue Service of 
inconsistency. An indirect partner who--
    (i) Treats an item from a source partnership in a manner 
inconsistent with the treatment of that item on the source partnership's 
return; and
    (ii) Files a statement identifying the inconsistency with the source 
partnership in accordance with Sec. 301.6222(c)-1, shall not be subject 
to a computational adjustment to conform the treatment of that item to 
the treatment of that item on the return of the source partnership.
    (2) Indirect partner does not notify the Internal Revenue Service of 
inconsistency. Except as provided in paragraph (b)(3) of this section, 
an indirect partner who--

[[Page 164]]

    (i) Treats an item from a source partnership in a manner 
inconsistent with the treatment of that item on the source partnership's 
return; and
    (ii) Fails to file a statement identifying the inconsistency with 
the source partnership in accordance with Sec. 301.6222(b)-1, is 
subject to a computational adjustment to conform the treatment of that 
item to the treatment of that item on the return of the source 
partnership.
    (3) Indirect partner files consistently with a pass-thru partner 
that notifies the Internal Revenue Service of the inconsistency. If an 
indirect partner treats an item from a source partnership in a manner 
consistent with the treatment of that item by a pass-thru partner 
through which the indirect partner holds the interest in the source 
partnership and that pass-thru partner--
    (i) Treats that item in a manner inconsistent with the treatment of 
that item on the source partnership's return; and
    (ii) Files a statement identifying the inconsistency with the source 
partnership in accordance with Sec. 301.6222(b)-1, the indirect partner 
is not subject to a computational adjustment to conform to the treatment 
of that item on the return of the source partnership.
    (d) Examples. The following examples illustrate the principles of 
this section:

    Example 1. One of the partners in Partnership A is Partnership B, 
which has four equal partners C, D, E, and F. Both A and B are 
partnerships within the meaning of section 6231(a)(1). On its return, A 
reports $100,000 as B's distributive share of A's ordinary income. B, 
however, reports only $80,000 as its distributive share of the income 
and does not notify the Internal Revenue Service of this inconsistent 
treatment with respect to A. C reports $20,000 as its distributive share 
of the item. Although C reports the item consistently with B, C is 
subject to a computational adjustment to conform the treatment of that 
item on C's return to the treatment of that item on A's return.
    Example 2. Assume the same facts as in Example 1, except that B 
notified the Internal Revenue Service of its inconsistent treatment with 
respect to source partnership A. C is not subject to a computational 
adjustment.
    Example 3. Assume the same facts as in Example 1. D reports only 
$15,000 as D's distributive share of the income and does not report the 
inconsistency. F reports only $9,000 as its distributive share of the 
item but reports this inconsistency with respect to source partnership 
A. D is subject to a computational adjustment to conform the treatment 
of that item on D's return to the treatment of that item on A's return. 
F is not subject to a computational adjustment.
    Example 4. Assume the same facts as in Example 3, except that F 
reported the inconsistency with respect to B and did not report the 
inconsistency with respect to source partnership A. F is subject to a 
computational adjustment to conform the treatment of that item on F's 
return to the treatment of that item on A's return.
    Example 5. Assume the same facts as in Example 1. E reports $25,000 
as its distributive share of the item. Regardless of whether E reports 
the inconsistency between its treatment of the item and that by B, E is 
neither subject to a computational adjustment to conform E's treatment 
of that item to that of B nor subject to the notice described in section 
6231(b)(1)(A) with respect to any such notification of inconsistent 
treatment.

    (e) Effective date. This section is applicable to partnership 
taxable years beginning on or after October 4, 2001. For years beginning 
prior to October 4, 2001, see Sec. 301.6222(a)-2T contained in 26 CFR 
part 1, revised April 1, 2001.

[T.D. 8965, 66 FR 50545, Oct. 4, 2001]