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If respondent’s ultimate rejection of the amended return was
warranted on procedural grounds, it was also appropriate as a
matter of substantive law. A partnership is treated as a
separate entity for tax accounting purposes: in general, the
determination of allowable deductions, losses, and credits
arising from a business conducted in partnership form is made at
the partnership level, and the decision to report these items is
made at the partnership level as well. Sec. 703. Each partner’s
distributive shares of these items are determined pursuant to the
partnership agreement. Sec. 704(a). The partner is required to
take his distributive shares into account in determining his
income tax. Sec. 702(a). The investment credit is one of the
partnership items for which each partner must take into account
his distributive share, determined by applying statutorily
specified percentages to the share of total basis or cost of
partnership section 38 property that is allocated to him under
the partnership agreement and reported to him on Schedule K-1.
Former secs. 46(a), (b), and (c) (before amendment in 1990);
Southern v. Commissioner, supra at 54; sec. 1.46-3(f), Income Tax
Regs.
(...continued)
revoke the carryover of the unused portion of the credit to that
year, it was likewise ineffective, but for different reasons.
Carryover of an investment credit is not a partnership item, but
an “affected item”. Sec. 6231(a)(5); Maxwell v. Commissioner,
87 T.C. 783, 790 (1986). Therefore sec. 6227 is inapplicable and
the general requirements for acceptance of amended returns
expounded by this Court in Goldstone v. Commissioner, 65 T.C. 113
(1975) would govern. Petitioners did not satisfy these
requirements.
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