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(1974). The question whether respondent made adjustments to the
partnership Federal income tax returns before issuing the notice
of deficiency to petitioners is thus irrelevant here. As noted
above, petitioners have the burden of proving to this Court that
they are not liable for the determined deficiencies. When they
fail to meet this burden, as they have done here, we will sustain
a deficiency notice disallowing a partnership loss even though
the audit of the partnership was not yet final. Chaum v.
Commissioner, 69 T.C. 156, 163-164 (1977).3
Petitioners also argue that there is a presumption that
business deals take place at arm’s length. They conclude that,
because respondent has not disproved their claims that the
Oshtemo-Kalamazoo transactions were conducted at arm’s length,
their Oshtemo-Kalamazoo transactions are presumptively valid and
must be accepted for purposes of Federal income taxation.
Petitioners again fail to recognize that it is their burden, and
not respondent’s, to prove each fact needed to substantiate the
3 For taxable years beginning after Sept. 3, 1982, the
Internal Revenue Code provides for determining the tax treatment
of items of partnership income, loss, deductions, and credits at
the partnership level in a unified partnership proceeding rather
than in separate proceedings with the partners, pursuant to the
audit and litigation procedures of the Tax Equity and Fiscal
Responsibility Act of 1982 (TEFRA), Pub. L. 97-248, sec. 402(a),
96 Stat. 324, 648. Partnership items include each partner's
proportionate share of the partnership's aggregate items of
income, gain, loss, deduction, or credit. Sec. 6231(a)(3); sec.
301.6231(a)(3)-1(a)(1)(i), Proced. & Admin. Regs. These
provisions, however, are effective only for partnership taxable
years beginning after Sept. 3, 1982. See TEFRA sec. 407(a)(1),
96 Stat. 670. Accordingly, they are not in effect for the years
here at issue.
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