July 23, 2003

The Honorable William M. Thomas, Chair

House Ways & Means Committee

1102 Longworth House Office Bldg.

Washington, D.C.20515

The Honorable Amory Houghton, Jr., Chair

Oversight Subcommittee

1136 Longworth House Office Bldg.

Washington, D.C.20515

The Honorable Jim McCrery, Chair

Select Revenue Measures Subcommittee

1135 Longworth House Office Bldg.

Washington, D.C.20515

Dear Chairmen Thomas, Houghton and McCrery:

The American Institute of Certified Public Accountants would like to suggest a statutory change that would (1) increase compliance among partners disposing of partnership interests where the partnership asset mix includes section 751 "hot assets" such as accounts receivable and (2) would encourage partnerships to provide needed data to the disposing partner.

A compliance problem exists, in part, because statutory reporting requirements under section 6050K require that a separate return be made when such a disposition occurs and the IRS has interpreted this to mean that such reporting cannot be part of the Schedule K–1 because that would not constitute a separate return. Because the implementing regulations and instructions to Form 8308, Report of a Sale or Exchange of Certain Partnership Interests, (the separate return), have limited the information being exchanged to basic information on the parties to the transaction, no substantive information, such as the amount of the proceeds attributable to the hot assets, is transmitted, making it a very difficult process for these partners to correctly characterize these transfer proceeds. Eliminating the separate return requirement is important because it will free the IRS to permit partnerships to utilize the transferring partner's (often final) Schedule K–1 (and other relevant portions of the Form 1065) to report these transactions, including such partner's share of the partnership's section 751(a) amount and information on the parties to the exchange.

Our proposed statutory language grants the Treasury Secretary the authority to allow that sale and exchange information be reported in the most appropriate format, thereby allowing the Service to place responsibility for the reporting of financial data that relates to the partnership's books and records squarely on the partnership—the entity with the greatest ability to report completely and accurately. Our language further gives the Secretary the flexibility to allow partnerships to furnish this information to partners at the same time as they report other financial information (generally, April 15), rather than the more burdensome deadline of January 31. This is a common sense change to eliminate an often impossible reporting requirement. Our February 15, 2000 letter (enclosed), explains these issues in more detail.

Thank you for your consideration. If you have any questions, please contact Betsy Case, Chair of the AICPA Partnership Taxation Technical Resource Panel at (202) 414–1628; or Marc A. Hyman, AICPA Technical Manager at (202) 434–9231.

Sincerely,

Robert A. Zarzar

Chair

Tax Executive Committee

Cc: Payson Peabody, House W&M IRS Oversight Subcommittee Staff

Jeff McMillen, House W&M Select Revenue Measures Subcommittee Staff

Lysa Rydland, House W&M Select Revenue Measures Subcommittee Staff

Heather C. Malloy, Associate Chief Counsel, IRS P&SI

Mathew W. Lay, Assistant to the Branch Chief, IRS P&SI

Charles J. Langley, IRS P&SI

Stewart Connard, IRS Partnership Technical Specialist

Johnny Cervantes, IRS Forms and Publications

DRAFT STATUTORY LANGUAGE

MODIFYING IRC SECTION 6050K TO CLARIFY THAT

THE SECRETARY OF THE TREASURY HAS THE AUTHORITY

TO COLLECT RELEVANT INFORMATION PERTINENT TO

SECTION 751(a) EXCHANGES IN ANY MANNER DEEMED APPROPRIATE

IRC Section 6050K should be amended to read as follows:

Sec. 6050K. Returns relating to exchanges of certain partnership interests.

(a)  In general.

Except as provided in regulations prescribed by the Secretary, if there is an exchange described in section 751(a) of any interest in a partnership during any calendar year, such partnership shall make a return provide information to the Secretary, at such time and in such manner as the Secretary may require by regulations, for such calendar year stating –

(1)  the name and address of the transferee and transferor in such exchange, and

(2)  such other information as the Secretary may by regulations prescribe.

Such return shall be made at such time and in such manner as the Secretary may require by regulations.

(b)  Statements to be furnished to transferor and transferee.

Every partnership required to make a return provide information under subsection (a) shall furnish to the transferor and transferee of the partnership interest each person whose name is required to be set forth in such return a written statement showing –

(1)  the name, address, and phone number of the tax matters partner or other information contact person of the partnership required to make provide such information return, and

(2)  the all information required to be shown on the return within the information provided to the Secretary under subsection (a) with respect to such person.

Such information shall be provided at such time and in such manner as the Secretary may require by regulations. The written statement required under the preceding sentence shall be furnished to the person on or before January 31 of the year following the calendar year for which the return under subsection (a) was required to be made.

(c)  Requirement that transferor notify partnership.

(1) In general. In the case of any exchange described in subsection (a), the transferor of the partnership interest shall promptly notify the partnership of such exchange.

(2) Partnership not required to make return provide information to the Secretary until notice. A partnership shall not be required to make a return provide information to the Secretary under this section with respect to any exchange until the partnership is notified of such exchange.