- 11 - In the settlement that respondent reached with Ethanol, the investment credit at issue was, for the most part, allowed. Petitioners do not argue that this credit was not properly allowed or that their distributive share of the allowable credit was improperly computed. There is no basis in the record for concluding otherwise than that the treatment of the investment credit on petitioners’ original return was proper to the extent allowed by respondent, and that the treatment on their amended return was improper. Petitioners challenge the substance of respondent’s determination only on the ground that when they filed their bankruptcy petition in December 1992, partnership items on their return converted automatically to nonpartnership items by operation of law, pursuant to section 6231(b)(1)(D) and (c)(2) and section 301.6231(c)-7T, Temporary Proced. & Admin. Regs., 52 Fed. Reg. 6793 (Mar. 5, 1987). This conversion had the following effects, in their view. First, “Any TEFRA proceeding making a determination of the proper treatment of partnership items has no effect on the treatment of non-partnership items.” Therefore the prospective settlement with Ethanol on which respondent relied in determining petitioners’ deficiency was entirely irrelevant to their liability. Second, the conversion of the investment credit to a nonpartnership item effectively eliminated the requirement that petitioners’ treatment conform to the partnership level treatment of this item. These arguments are based on a number of misconceptions. The regulations provide for conversion of partnership items toPage: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 Next
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