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We have reached that conclusion irrespective of whether the
adjustment concerned the transactions of another entity and
irrespective of whether that entity was taxable.
Around 1989-90, a conflict arose amongst Federal Courts of
Appeals over whether a passthrough corporate entity’s or a
shareholder’s period for assessment controlled the Commissioner’s
ability to determine a deficiency for an item flowing from the
corporation to the shareholder. In Bufferd v. Commissioner, 506
U.S. 523 (1993), the Supreme Court addressed that conflict in the
context of a subchapter S corporation and its shareholder. In
Bufferd, it was held that adjustments to a shareholder’s income
are governed by the shareholder’s period for assessment.
B. Caselaw Development
Petitioners and respondent each focus on the Supreme Court’s
holding in Bufferd v. Commissioner, supra, to support their
positions. Respondent contends that Bufferd, even though it
involves a shareholder and an S corporation, stands for the
general principle that it is the taxpayer’s return that controls
the assessment period and not the return of the entity from which
the adjustment may be derived. Conversely, petitioners contend
that Bufferd is distinguishable and applies solely to S
corporations and, accordingly, does not control situations where
the adjustment involves a shareholder and a C corporation.
The Supreme Court in resolving the circuit conflict held
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