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percent fraction of section 6501(e)(1)(A) (“omits from gross
income an amount properly includible therein”) but not to the
denominator--“amount of gross income stated in the return”
(emphasis added). See also the comments of this Court and the
Court of Appeals of the Second Circuit in Estate of Klein v.
Commissioner, 63 T.C. at 591 n.6, affd. 537 F.2d at 705 n.9,
pointing out that “gross income” within the meaning of section
702(c) differs from “gross income” within the meaning of section
6501(e)(1)(A). Thus, notwithstanding both sides’ reliance, we
conclude that neither section 702(c) nor section 1.702-1(c)(2),
Income Tax Regs., leads us to a resolution of the 2d-tier
partnership matter, especially in the context of the denominator
of the 25-percent fraction.
Respondent contends as follows:
The partnership return (Form 1065) itself further
supports looking only to the direct partnership return to
determine gross income for section 6501(e) purposes. The
total gross income of the partnership is the sum of the
amounts on lines 1 through 7 with the exception of the
I.R.C. � 6501(e)(1)(A)(i) exclusion for cost of goods sold.
* * *
These contentions do not support respondent’s position. The
sum of the items on lines 1 through 7 frequently is not “The
total gross income of the [1st-tier] partnership.” Firstly, an
element of gross income may appear on another line, after line 7.
Secondly, several of the items on lines 1 through 7 are net
amounts, and the underlying gross income may have to be
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