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petitioners’ tax returns and not the partnerships’ information
returns, (2) the regulations’ concept of setting forth on a tax
return applies only to what is set forth on petitioners’ tax
returns, and (3) a contrary interpretation “would impose an
excessive administrative burden on the Service and on taxpayers.”
Petitioners maintain that section 702(c) and the regulations
plainly require that whenever it is necessary to determine the
amount of a partner’s gross income, that amount is to include the
partner’s distributive share of the partnership’s gross income.
As applied to the instant cases, in order to determine the amount
of petitioners’ gross income from the 1st-tier partnerships,
there must first be determined the amount of each 1st-tier
partnership’s gross income. Section 702(c)’s rule then applies,
petitioners contend, so that in order to determine the amount of
any 1st-tier partnership’s gross income, there must first be
determined the amount of each 2d-tier partnership’s gross income.
Petitioners maintain that this rule is consistent with the “look-
through” approaches of other subchapter K provisions (e.g., in
secs. 1.704-3(a)(8), 1.704-2(k), and 1.752-4, Income Tax Regs.),
and provisions outside subchapter K, such as sections
108(a)(1)(C) and 904(d).
Under section 6501(e)(1)(A), the denominator of the 25-
percent fraction is “the amount of gross income stated in the
return”. But the taxpayer ordinarily does not state the amount
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Last modified: May 25, 2011