- 147 -
given effect for tax purposes. The Court of Appeals for the
Third Circuit has recently stated that "economic substance is a
prerequisite to any Code provisions allowing deductions." United
States v. Wexler, 31 F.3d at 124 (quoting Lerman v. Commissioner,
939 F.2d at 52). There is no indication that Congress, in
forbidding tax shelters' use of cash accounting methods after
1986, intended to validate earlier sham transactions, such as
those at issue. Cf. Knetsch v. United States, 364 U.S. at 369.
We reject as frivolous another procedural argument advanced
by petitioners. They allege that respondent has accepted certain
partnership returns, most notably that of MIT 82 in 1985, a year
in which MIT 82 reported substantial taxable income. Petitioners
then argue that respondent has violated a duty of consistency.
Specifically, they charge respondent with failure to propose
adjustments to those returns, and to eliminate the reported
income because it arises from a sham transaction. Respondent's
lack of consistency, petitioners conclude, works a retroactive
quasi-estoppel. This estoppel bars respondent's defense of the
asserted deficiencies arising from MIT 82's alleged activities in
the taxable years properly before the Court.
Petitioners have cited no authority that supports this
quasi-estoppel argument,42 nor have they established its factual
42Petitioners' brief on this point refers to the provisions
of the unified partnership proceedings under secs. 6221-6233 and
dicta from this Court's opinion in Roberts v. Commissioner, 94
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