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claimed losses from the trust. The beneficiary contended that
the trust’s assessment period had expired and the Commissioner
was barred from making the adjustments to the beneficiary’s
claimed loss.
On those facts, this Court held that the expiration of the
trust’s assessment periods did not bar the deficiency
determinations for the beneficiary. That holding was based on
our reasoning that the entity which was the source for the
adjustment was a separate taxable entity (complex trust). The
Court of Appeals for the Eighth Circuit reversed that holding
using the rationale that the Commissioner can adjust the tax
liability only at the source of income; i.e., the trust. Fendell
v. Commissioner, 906 F.2d at 364.
Some Courts of Appeals distinguished Fendell, by limiting
its application to situations where: (1) The source entity is
recognized as a separate taxable entity, and (2) the Commissioner
is indirectly attempting to adjust the entity’s tax through the
equity or beneficial owner after the statute prohibits a direct
adjustment. See, e.g., Siben v. Commissioner, 930 F.2d 1034,
1038 (2d Cir. 1991), affg. T.C. Memo. 1990-435, where Fendell was
held to be inapplicable because a partnership is not an entity
taxable separately from the partners.
A similar holding by this Court concerning a passthrough
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