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entity was reversed by the Court of Appeals for the Ninth
Circuit. Kelley v. Commissioner, 877 F.2d 756 (9th Cir. 1989),
revg. and remanding T.C. Memo. 1986-405. In that case, the court
held that the Commissioner could not adjust a shareholder’s
return on the basis of an adjustment to an S corporation’s return
when the statute had run on the corporation’s tax year.9 The
rationale underlying that appellate opinion was that the section
6501(a) 3-year period for assessment was to be applied at the
“source entity” level (S corporation).
This Court and some Courts of Appeals agreed with the
Commissioner’s position that the relevant return for determining
whether the period for assessment had expired under section
6501(a) is that of a taxpayer against whom the Commissioner has
determined a deficiency. Fehlhaber v. Commissioner, 94 T.C. 863,
868 (1990) (S corporation), affd. 954 F.2d 653 (11th Cir. 1992);
Bufferd v. Commissioner, T.C. Memo. 1991-170 (S. corporation),
affd. 952 F.2d 675 (2d Cir. 1992), affd. 506 U.S. 523 (1993);
Siben v. Commissioner, T.C. Memo. 1990-435 (partnership), affd.
930 F.2d 1034 (2d Cir. 1991); Green v. Commissioner, 963 F.2d 783
(5th Cir. 1992) (S corporation), affg. Brody v. Commissioner,
9 Kelly v. Commissioner, 877 F.2d 756 (9th Cir. 1989), revg.
and remanding T.C. Memo. 1986-405, was one in a line of cases in
which taxpayers claimed losses with respect to their passthrough
entity. These taxpayers had also extended the assessment period
as to their individual returns, but no extensions had been
obtained for the passthrough entities, whose assessment period(s)
would have expired.
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