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which the notice of final partnership administrative
adjustment relates * * *.
Section 301.6241-1T(c)(2)(ii), Temporary Proced. & Admin.
Regs., 52 Fed. Reg. 3003 (Jan. 30, 1987), creates an exception to
the unified procedures for certain S corporations having 5 or
fewer shareholders for any taxable year of an S corporation
having a due date for its return on or after January 30, 1987.
However, the small S corporation exception does not apply where,
as here, any of an S corporation's shareholders is a trust.
Primco Management Co. v. Commissioner, T.C. Memo. 1997-332; sec.
301.6241-1T(c)(2)(iii), Temporary Proced. & Admin. Regs., 52 Fed.
Reg. 3003 (Jan. 30, 1987).
Although respondent has conceded that shareholder basis is
not a subchapter S item over which this Court has jurisdiction in
a corporate-level proceeding, see Dial USA, Inc. v. Commissioner,
supra, respondent nevertheless maintains that the foregoing
concession does not alter the fact that Chesapeake erroneously
characterized its excluded COD income as an item of separately
stated tax-exempt income on its return for the year at issue.
Respondent contends that the characterization of such an item of
income is a subchapter S item pursuant to section 6245 to which
the FSAA relates, which may only be determined by this Court in a
unified proceeding under section 6226(f).
Petitioner does not dispute that an adjustment to the
characterization of excluded COD income on Chesapeake's return
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