12
determination was more appropriately made at the partner level
and was, therefore, not a partnership item.
Similarly, in Hang v. Commissioner, 95 T.C. 74, 80 (1990), a
setting closely analogous to the instant case, we held that the
determination of whether a father was the true and beneficial
owner of shares in an S corporation that were held in the name of
his sons is properly made at the individual shareholder level.8
The Court reasoned that determining the true and beneficial owner
of the shares was more appropriately determined at the individual
level because the determination depends upon factors that cannot
be determined at the corporate level and requires participation
of the allegedly true owner of the shares. Hang v. Commissioner,
Id. at 80-81.
We find our decisions in Hang and Katz highly persuasive
because the effect of the determinations at issue in Hang and
Katz are strikingly similar to the effect of respondent’s
8 Under the S corporation audit and litigation procedures (S
Corporation procedures), secs. 6241 through 6245, a “subchapter S
item” is defined as “any item of an S corporation to the extent
regulations prescribed by the Secretary provide that, for
purposes of this subtitle, such item is more appropriately
determined at the corporate level”. Sec. 6245. The tax
treatment of a subch. S item generally must be determined in an
entity level proceeding. See sec. 6241.
The S Corporation procedures were enacted shortly after the
TEFRA procedures as part of the Subchapter S Revision Act of
1982, Pub. L. 97-354, sec. 4(a), 96 Stat. 1691. The S
Corporation procedures were repealed as of Dec. 31, 1996, by the
Small Business Job Protection Act of 1996, Pub. L. 104-188, sec.
1307(c)(1), 110 Stat. 1781.
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