IRS views collaboration agreement as partnership, with Section 199 deduction determined at partner level

June 2013

Overview

In a recently released Chief Counsel Advice 201323015 (the CCA), the IRS National Office concluded that a written collaboration agreement constituted a partnership for all federal income tax purposes and could not elect to be excluded from the application of subchapter K of the Code.  As a result, both parties to the collaboration agreement must determine their respective Section 199 deductions at the partner level under Section 199(d)(1)(A).  Taxpayers that enter into a collaboration agreement should consider the potential impact of this CCA not only on their Section 199 deductions but also in determining all of the collaboration’s federal income taxation and filing requirements.

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