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petitioners' share of losses is an affected item for 1989 and
1990, but is not an affected item for 1987 and 1988. Nor did we
state that whether or not an item is an affected item depends
solely on whether respondent "elects" to challenge it through an
affected items deficiency proceeding. We simply held that "the
characterization of losses as either passive or nonpassive in the
hands of a partner is an affected item under section 469".
Estate of Quick v. Commissioner, supra at 188.
Respondent did not challenge petitioners' characterization
of their proportionate share of partnership losses for 1987 and
1988, and thus the affected items deficiency procedures were not
required to be followed for those years. Rather, adjustments to
the amounts of petitioners' distributive share of partnership
losses in those years were properly made by respondent pursuant
to notices of computational adjustment upon the conclusion of the
partnership level proceeding. Sec. 6230(a)(1). It is only
because respondent challenged the characterization of losses for
1989 and 1990, necessitating partner level factual
determinations, that affected items deficiency procedures apply
to those years. Sec. 6230(a)(2)(A)(i).
In sum, respondent cannot, as petitioners contend,
arbitrarily "elect" to make the section 469 issue an affected
item for certain years but not for others. However, respondent
is free to challenge a taxpayer's characterization of his share
of partnership losses via the affected items deficiency
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