assess the liability only against the QSub or QRS and, in the event of a failure to pay the liability after notice and demand, may file a federal tax lien only against the QSub's or QRS's property and rights to property. * Another instance in which a DRE is recognized for federal tax purposes arises when the IRS is seeking to collect a tax liability from the sole member of a SMLLC. In CCA 199930013, the IRS Chief Counsel advised that the IRS could not levy on an LLC's assets, because under state law the sole member of the LLC did not own the property of the LLC. The Chief Counsel stated that the mere fact that an LLC is disregarded as an entity separate from its sole member (the taxpayer in that case) for federal tax purposes does not entitle the IRS to disregard the LLC for collection purposes. “® The Chief Counsel added that state law determines a taxpayer's property interests for purposes of tax collection, “4 but the IRS could levy on the taxpayer's distributive interest in the LLC and sell that interest or file suit to foreclose the federal tax lien against the ownership interest. “8 In addition, depending on the facts of the case, the IRS might collect from an LLC's assets on the basis that it is the alter ego of its single-member or pursuant to a nominee or transferee liability theory. TEFRA Rules. Another exception to the general rule arises in the context of the Code's audit rules for partnerships, which were enacted by the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA). TEFRA radically changed the way in which the IRS audits partnerships for errors in reporting partnership income. 22 TEFRA's basis is found in Section 6221, which provides that “the tax treatment of any partnership item (and the applicability of any penalty, addition to tax, or additional amount which relates to an adjustment to a partnership item) shall be determined at the partnership level.” Section 6231(a)(1)(B) excludes “small partnerships” from the TEFRA rules by excluding fr