Frank Agostino wrote an article for Tax Notes Federal titled “Representing the TEFRA Partner After the FPAA.”
In the article, Frank provides a thorough, detailed technical breakdown of the considerations practitioners should make when a current or prospective client is a partner in a partnership that was under examination under TEFRA (Tax Equity and Fiscal Responsibility Act of 1982) framework.
TEFRA partnership examinations will eventually come to an end via settlement, Tax Court decision, or defaulted final partnership administrative adjustment (FPAA.) However, once the examination concludes, the IRS moves their focus from the partnership to the individual partners (hereon referred to as TEFRA partners.) The IRS computes adjustments at the partner level, which frequently entails collection actions on the significant taxes, interest, and penalties that TEFRA partners tend to owe. TEFRA partners now must navigate a completely different procedural world with strict statutory deadlines, fewer remedies, and no way back to partnership-level examinations.
A common challenge among TEFRA partners, particularly passive investors in real estate or investment partnerships, is that they usually do not receive any notice that the partnership was under examination. The partnership may have settled, lost in Tax Court, or accepted the FPAA default, but the TEFRA partner remains unaware that partnership-level penalties were assessed. Once the focal point has switched to the TEFRA partners, they face IRS assessments with short payment deadlines and extremely limited time to respond without further penalties.
Because the 2025 Supreme Court decision Commissioner v. Zuch (605 U.S. 422) which drastically narrowed collection due process jurisdiction that affects TEFRA partners, Frank recommends that practitioners anticipate the jurisdictional trap and strategize around it in advance. He asks practitioners to question whether it's more beneficial to intervene at the partnership level or wait until they can represent the TEFRA partner at the partner level.
Partnership-level defense is important to TEFRA partners, especially when utilizing the Form 872-P limitations defense. However, even if partnership-level arguments fail or the FPAA defaults without contest, the Form 872-P defense can follow the TEFRA partner into further proceedings even though the procedural vehicle changes. Since intervention is costly and TEFRA litigation is slow-moving, it may not always benefit the TEFRA partner to intervene.
Frank outlines the different scenarios in which TEFRA partners may choose to move forward with intervention or opt to wait for the computational adjustment at the partnership level. Waiting and intervention both carry risks, but waiting runs the risk of losing a powerful partner-level remedy, the Section 6230(c) refund suit. There is a strict deadline of six months after the computational adjustment notice is mailed, and the clock often starts ticking for TEFRA partners much earlier if they were unaware this notice was mailed at all.
A CDP (collections due process) hearing is another common remedy for TEFRA partners in this situation, particularly if they receive a pre-levy notice from the IRS due to owing substantial taxes, penalties, and interest. TEFRA partners can challenge the existence of their balance if they did not receive prior notices of deficiency. However, the post-Zuch landscape can create jurisdictional challenges even though it doesn't completely eliminate CDP hearings as a potential remedy.
You can learn more about the nuances of TEFRA partner remedies and defense strategies by reading the complete article here.
About Frank
During his four decades of practicing tax law, Frank has been the driving force behind many successful lawsuits that sought to establish fair tax enforcement principles for taxpayers. Frank has extensive courtroom experience, litigating more than 100 tax matters, several of which established important precedents for taxpayers.