Victor Grigoraci and Judith A. Grigoraci, et al. - Page 14




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               Respondent also claims that two portions of the regulation             
          support his argument that a reallocation of partnership items               
          from the partners of record to the allegedly true and actual                
          partners is a partnership item.  First, respondent claims that              
          section 301.6231(a)(3)-1(a)(1)(i), Proced. & Admin. Regs.,                  
          includes as a partnership item a determination of the                       
          partnership’s aggregate and each partner’s share of “income,                
          gain, loss, deduction, or credit of the partnership”.  Sec.                 
          301.6231(a)(3)-1(a)(1)(i), Proced. & Admin. Regs.  We disagree              
          with respondent that a determination of whether the corporate               
          partners in TWA and GTWP were shams is a partnership item under             
          this section of the regulations.                                            
               The aggregate income, gain, loss, deductions and credits of            
          the partnership are not in dispute.9  Moreover, for GTWP and TWA,           
          the determination of whether a partner is a corporation or an               
          individual has no impact on the partnership level issues covered            
          by the regulation.  There is also no dispute about the amount of            
          the allocations made to the partners, whether they be                       
          corporations or individuals.  In fact, a determination that any             
          of the partners is an individual--rather than a corporation--for            
          Federal tax purposes does not require an adjustment to the                  



               9  As stated previously, adjustments to TWA and GTWP’s                 
          income, gain, loss, deductions and credits are not in dispute.              
          The only liability created by the disputed adjustments is to                
          create self-employment tax liability for the individual partners.           





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