At a recent ABA meeting, practitioners discussed the implications of a Chief Counsel Advice memo issued in June 2014. The facts involved a LLC owned by a foreign entity and a domestic corporation. The foreign entity, and not the member manager of the LLC, signed the LLC’s Form 1065 partnership signature. The CCA addressed whether a Form 1065 that is not signed by a general partner or an LLC member manager is a valid return for purposes of triggering the statute of limitations for assessment. The IRS stated that the relevant return for purposes of the assessment statute of limitations is the return of “the taxpayer whose liability is being assessed” and not the partnership’s return. However, the IRS also stated that a partnership return not signed by a general partner or LLC member manager is not a valid partnership return and therefore the return at issue was invalid.
Practitioners note that the guidance impacts investment funds organized as partnerships that have management firms actually operate the partnership. If the management firm’s manager does not have an interest in the partnership, he cannot sign the partnership return even though he effectively runs the partnership. Additionally, regarding partnerships with thousands of limited partners, the IRS wants someone with real knowledge of the partnership business to sign the return.
Despite the guidance, questions remain. Must an individual be recognized as a partner under subchapter K for partnership return signing purposes? If a member manager of an LLC does not own any profits, capital or losses interests in the LLC, is a partnership return signed by such an individual valid? Taxpayers are encouraged to consult with their advisors for the answers to these questions.