(a)

Adjustments flow through to partners for year in which adjustment takes effect

(1)

In general

If any partnership adjustment with respect to any partnership item takes effect (within the meaning of subsection (d)(2)) during any partnership taxable year and if an election under paragraph (2) does not apply to such adjustment, such adjustment shall be taken into account in determining the amount of such item for the partnership taxable year in which such adjustment takes effect. In applying this title to any person who is (directly or indirectly) a partner in such partnership during such partnership taxable year, such adjustment shall be treated as an item actually arising during such taxable year.

(2)

Partnership liable in certain cases

If -

(A)

a partnership elects under this paragraph to not take an adjustment into account under paragraph (1),

(B)

a partnership does not make such an election but in filing its return for any partnership taxable year fails to take fully into account any partnership adjustment as required under paragraph (1), or

(C)

any partnership adjustment involves a reduction in a credit which exceeds the amount of such credit determined for the partnership taxable year in which the adjustment takes effect,

the partnership shall pay to the Secretary an amount determined by applying the rules of subsection (b)(4) to the adjustments not so taken into account and any excess referred to in subparagraph (C).

(3)

Offsetting adjustments taken into account

If a partnership adjustment requires another adjustment in a taxable year after the adjusted year and before the partnership taxable year in which such partnership adjustment takes effect, such other adjustment shall be taken into account under this subsection for the partnership taxable year in which such partnership adjustment takes effect.

(4)

Coordination with part II

Amounts taken into account under this subsection for any partnership taxable year shall continue to be treated as adjustments for the adjusted year for purposes of determining whether such amounts may be readjusted under part II.

(b)

Partnership liable for interest and penalties

(1)

In general

If a partnership adjustment takes effect during any partnership taxable year and such adjustment results in an imputed underpayment for the adjusted year, the partnership -

(A)

shall pay to the Secretary interest computed under paragraph (2), and

(B)

shall be liable for any penalty, addition to tax, or additional amount as provided in paragraph (3).

(2)

Determination of amount of interest

The interest computed under this paragraph with respect to any partnership adjustment is the interest which would be determined under chapter 67 -

(A)

on the imputed underpayment determined under paragraph (4) with respect to such adjustment,

(B)

for the period beginning on the day after the return due date for the adjusted year and ending on the return due date for the partnership taxable year in which such adjustment takes effect (or, if earlier, in the case of any adjustment to which subsection (a)(2) applies, the date on which the payment under subsection (a)(2) is made).

Proper adjustments in the amount determined under the preceding sentence shall be made for adjustments required for partnership taxable years after the adjusted year and before the year in which the partnership adjustment takes effect by reason of such partnership adjustment.

(3)

Penalties

A partnership shall be liable for any penalty, addition to tax, or additional amount for which it would have been liable if such partnership had been an individual subject to tax under chapter 1 for the adjusted year and the imputed underpayment determined under paragraph (4) were an actual underpayment (or understatement) for such year.

(4)

Imputed underpayment

For purposes of this subsection, the imputed underpayment determined under this paragraph with respect to any partnership adjustment is the underpayment (if any) which would result -

(A)

by netting all adjustments to items of income, gain, loss, or deduction and by treating any net increase in income as an underpayment equal to the amount of such net increase multiplied by the highest rate of tax in effect under section 1 or 11 for the adjusted year, and

(B)

by taking adjustments to credits into account as increases or decreases (whichever is appropriate) in the amount of tax.

For purposes of the preceding sentence, any net decrease in a loss shall be treated as an increase in income and a similar rule shall apply to a net increase in a loss.

(c)

Administrative provisions

(1)

In general

Any payment required by subsection (a)(2) or (b)(1)(A) -

(A)

shall be assessed and collected in the same manner as if it were a tax imposed by subtitle C, and

(B)

shall be paid on or before the return due date for the partnership taxable year in which the partnership adjustment takes effect.

(2)

Interest

For purposes of determining interest, any payment required by subsection (a)(2) or (b)(1)(A) shall be treated as an underpayment of tax.

(3)

Penalties

(A)

In general

In the case of any failure by any partnership to pay on the date prescribed therefor any amount required by subsection (a)(2) or (b)(1)(A), there is hereby imposed on such partnership a penalty of 10 percent of the underpayment. For purposes of the preceding sentence, the term "underpayment" means the excess of any payment required under this section over the amount (if any) paid on or before the date prescribed therefor.

(B)

Accuracy-related and fraud penalties made applicable

For purposes of part II of subchapter A of chapter 68, any payment required by subsection (a)(2) shall be treated as an underpayment of tax.

(d)

Definitions and special rules

For purposes of this section -

(1)

Partnership adjustment

The term "partnership adjustment" means any adjustment in the amount of any partnership item of an electing large partnership.

(2)

When adjustment takes effect

A partnership adjustment takes effect -

(A)

in the case of an adjustment pursuant to the decision of a court in a proceeding brought under part II, when such decision becomes final,

(B)

in the case of an adjustment pursuant to any administrative adjustment request under section 6251, when such adjustment is allowed by the Secretary, or

(C)

in any other case, when such adjustment is made.

(3)

Adjusted year

The term "adjusted year" means the partnership taxable year to which the item being adjusted relates.

(4)

Return due date

The term "return due date" means, with respect to any taxable year, the date prescribed for filing the partnership return for such taxable year (determined without regard to extensions).

(5)

Adjustments involving changes in character

Under regulations, appropriate adjustments in the application of this section shall be made for purposes of taking into account partnership adjustments which involve a change in the character of any item of income, gain, loss, or deduction.

(e)

Payments nondeductible

No deduction shall be allowed under subtitle A for any payment required to be made by an electing large partnership under this section.