(1) General Rule.
(a) In general, the treatment of a
partnership item on the partner's return must be consistent with the treatment
of that item by the partnership in all respects including the amount, timing,
and characterization of the item. The following examples illustrate instances
of inconsistent treatment:
Example 1
: B is a partner of Partnership P. Both B and P use the calendar
year as the taxable year. In December 1993, P receives an advance payment for
services to be performed in 1994 and reports this amount as income for calendar
year 1993. However, B reports B's distributive share of that amount on B's
income tax return for 1994 and not on B's return for 1993. B's treatment of
this partnership item is inconsistent with the treatment of the item by
P.
Example 2
:
Partnership P incurred certain start-up costs before P was actively engaged in
business. P capitalized these costs. C, a partner in P, deducted C's
proportionate share of these start-up costs. C's treatment of the partnership
expenditure is inconsistent with the treatment of the item by P.
(b) If a partner does not treat a
partnership item on the partner's return in a manner that is consistent with
the treatment of that item by the partnership, and the partner does not notify
the department in the manner described in section (2) of this rule, the
department may conform the partner's return to the partnership return and
assert against the partner a deficiency as described in ORS
305.265. The notice of
deficiency may be issued in this case without the department opening a formal
examination or an audit of either the partnership return or the partner's
return.
(c) Partner notification of
an inconsistent treatment of a partnership item does not bind the department
into acceptance of the partner's treatment of that item.
(2) Manner of Notification of Inconsistency.
If a partner does not treat a partnership item on the partner's return in a
manner that is consistent with the treatment of that item by the partnership,
the partner must notify the department of the inconsistent treatment. Such
notification shall be made by attaching a statement to the partner's return.
The statement must contain the following information:
(a) Partner name and identification number;
(b) Partnership name and
identification number;
(c)
Beginning and ending date of partner's tax year;
(d) Beginning and ending date of
partnership's tax year;
(e) A
description of each inconsistently treated item. Include whether the
inconsistent treatment is in the amount, timing or characterization of the
item;
(f) The amount of each
inconsistent item as shown on Schedule K-1;
(g) The amount of each inconsistent item as
reported on the partner's return;
(h) A complete explanation as to the reason
for treating the items in an inconsistent manner.
(3) Multiple Inconsistencies. A partner who
reports the inconsistent treatment of partnership items on the partner's return
is protected from computational adjustments under section (1) of this rule only
with respect to those partnership items the inconsistent treatment of which is
reported. Thus, if a partner notifying the department with respect to one item
fails to report the inconsistent treatment of another item, the partner is
subject to a computational adjustment with respect to that latter item.
Example: Partner A of Partnership P treats a
deduction and a capital gain arising from P and A's return in a manner that is
inconsistent with the treatment of those items by P. A reports the inconsistent
treatment of the deduction but not of the capital gain. A is subject to a
computational adjustment under section (1) of this rule with respect to the
capital gain.
(4)
Adjustments Not Limited. If the department conducts a formal examination or
audit of a return of a partner whose partnership items have been reported as
being treated inconsistently, the department is not limited to making
adjustments that merely conform the partner's return to the partnership return.
Example: Partnership P allocates to E, one of its
partners, a loss of $8,000. E. however, claims a loss of $9,000 and reports the
inconsistent treatment. As a result of an examination of E's return, the
department may issue a deficiency notice which could include reducing the loss
to $3,000.
Notes
Or. Admin. R.
150-314-0475
RD 7-1993, f.
12-30-93, cert. ef. 12-31-93; Renumbered from 150-314.714(3),
REV
34-2016, f. 8-12-16, cert. ef.
9/1/2016
Stat. Auth.: ORS
305.100
Stats. Implemented: ORS
314.714
