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3. Is the Reallocation of Partnership Items From the
Partner of Record to the Allegedly True and Actual
Partner a Partnership Item?
Our precedent establishes that the hallmark of a partnership
item is that it affects the distributive shares reported to the
other partners. Blonien v. Commissioner, 118 T.C. 541, 551-552
n.6 (2002). In Katz v. Commissioner, 116 T.C. 5, 12 (2001), the
issue before the Court was “once a partnership has allocated
partnership items in respect of the interest of a partner who has
commenced a bankruptcy proceeding during the partnership taxable
year, whether the subdivision of those items between the partner
and his bankruptcy estate constitutes a partnership item”. In
Katz, the Court viewed this inquiry as tantamount to determining
whether a partner in bankruptcy and his bankruptcy estate should
be treated as separate partners. Id. We concluded that “from
the perspective of the partnership in its determination of each
partner’s distributive share of partnership tax items, a partner
in bankruptcy and his bankruptcy estate are properly considered
as one and the same” partner. Id. at 13. The reallocation of
the distributive share between the partner and his bankruptcy
estate had no impact on the partnership’s aggregate income or
loss, nor did it have any impact on the distributive shares
reported to the other partners. Accordingly, we held that the
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