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1982 (TEFRA) embodied in subchapter C of chapter 63 of the
Internal Revenue Code.” Toro Leasing falls within the “small
partnership” exception contained in section 6231(a)(1)(B)(i) and
thus is not under the purview of the unified partnership-level
audit procedures implemented by TEFRA. In such circumstances,
respondent has no obligation to conduct an audit of the
partnership and, as the following cases illustrate, may demand
that the individual taxpayer substantiate specific facts
underlying items allegedly derived from partnership activities.
For example, in Johnson v. Commissioner, T.C. Memo. 1999-
412, the taxpayers claimed partnership losses. After expressly
assuming that the partnerships at issue were small partnerships
within the meaning of section 6231(a)(1), we reasoned:
Section 6001 requires that a taxpayer liable for
any tax shall maintain such records, render such
statements, make such returns, and comply with such
regulations as the Secretary may from time to time
prescribe. To be entitled to a deduction, therefore, a
taxpayer is required to substantiate the deduction
through the maintenance of books and records.
Petitioner has not established that the entities
in question incurred a loss in 1992, or any other year.
At most, petitioner has established that the
partnership entities defaulted on the debt in the
amount of $2,590,001 in 1992. Even if petitioner had
established that the partnerships had incurred a loss,
petitioner would not be entitled to a flow-through loss
deduction as petitioner has not established his bases
in his partnership interests. [Id.]
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