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nonpartnership items in order to prevent the automatic bankruptcy
stay, 11 U.S.C. section 362(a), from interfering with any pending
partnership proceeding. Sec. 301.6231(c)-7T(a), Temporary
Proced. & Admin. Regs., supra. The consequences of conversion
are purely procedural: the partner filing the bankruptcy
petition drops out of the partnership proceeding, allowing that
proceeding to continue without regard to the automatic stay,
Computer Programs Lambda v. Commissioner, 89 T.C. 198, 206
(1987), and requiring the Commissioner to issue a notice of
deficiency to the partner, within an extended limitations period,
in order to adjust any converted items, secs. 6212, 6229(f); H.
Conf. Rept. 97-760, at 611 (1982), 1982-2 C.B. 600, 668.
Petitioners are mistaken in believing that the conversion of
their investment credit to the status of a nonpartnership item
had substantive consequences for their tax liability as well.
The prospective settlement on which respondent relied in
determining petitioners’ deficiency in December 1993, and which
was finalized in December 1994, is not irrelevant to petitioners’
liability. Although petitioners are not bound by a settlement to
which they were not parties, the settlement was presumably based
upon facts that are relevant to the determination of petitioners’
distributive share of the partnership credit and to the
applicability of recapture in 1986. The conversion did not in
any way alter the relationship between petitioners’ participation
and share in Ethanol and their tax liability for the years 1985
and 1986. Petitioners could have contested the deficiency
determination on the ground that it did not properly reflect the
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