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Withholding tax liability under section 1446 held partnership-level item

Withholding tax liability under section 1446

The U.S. Tax Court today issued an opinion concluding that a withholding tax liability under section 1446 was a partnership item and, as such, was properly included in a partnership-level proceeding under the TEFRA partnership audit provisions.


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The case is: YA Global Investments, LP v. Commissioner, 151 T.C. No. 2 (August 8, 2018). Read the Tax Court’s opinion [PDF 52 KB]


In notices of final partnership administrative adjustment (FPAAs), the IRS determined that the partnership was liable for withholding taxes under section 1446. Adjustments were made in the FPAAs to reflect the withholding tax liabilities as well as related additions to tax and penalties.

The partnership (through the tax matters partner (TMP)) filed a petition for readjustment of partnership items, and filed a motion to dismiss for lack of jurisdiction as to nonpartnership items. The TMP argued for dismissal by the Tax Court of the issue of liability under section 1446 for lack of jurisdiction because that liability was not a partnership item and was outside the scope of the court’s jurisdiction. 

The Tax Court today held that the partnership’s liability for withholding tax under section 1446 was a partnership item and therefore was properly before the court in a partnership-level proceeding.

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