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partnership tax return for 1997, Corona claimed a capital loss of
about $79 million from this transaction.6
Respondent issued separate notices of final partnership
administrative adjustment (FPAAs) to Perry Lerner as tax matters
partner for SMP and Corona with respect to their partnership
taxable years ended December 31, 1997, and December 31, 1998. In
the FPAAs, respondent disallowed SMP’s and Corona’s
aforementioned claimed capital losses.7 On a number of theories,
including the application of substance over form principles,
respondent argues that SMP and Corona are not entitled to the
indebtedness bases or the associated capital losses that those
6 This claimed loss essentially duplicated losses that Santa
Monica Pictures, LLC (SMP) had claimed from its sale to Imperial
Credit Industries, Inc. (Imperial), of SMP’s ownership interest
in Corona Film Finance Fund, LLC (Corona). Most of Corona’s
claimed loss passed through for the benefit of Imperial. As a
“fee” for the tax benefits it received, Imperial paid, indirectly
to SMP through Corona, almost $15 million.
At some point in these proceedings, Imperial filed a
bankruptcy petition. Consequently, any partnership items of
Imperial, including the loss that passed through from Corona,
became nonpartnership items on the date the bankruptcy petition
was filed. Sec. 301.6231(c)-7(a), Temporary Proced. & Admin.
Regs., 66 Fed. Reg. 50561 (Dec. 4, 2001). Imperial is not a
party to these proceedings.
7 In the notice of final partnership administrative
adjustment issued to Corona for its 1998 taxable year, respondent
determined, as the lone adjustment in that FPAA, an $80 million
increase in Corona’s reported distributions. Respondent concedes
that this adjustment is no longer a partnership item and that
this Court lacks jurisdiction to redetermine that adjustment.
Based on that concession, the Court will dismiss the taxable year
1988 as moot at docket No. 6164-03.
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