Michael W. and Charlotte S. Phillips - Page 10

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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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