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a notice of deficiency issued prior to the completion
of the partnership-level proceeding is invalid to the
extent it relates to a partnership item or an affected
item.
No FPAA was issued by respondent and no
partnership-level proceedings have been commenced
regarding the prepetition partnership losses in the
present case. Accordingly, if the NOL carryovers at
issue constitute affected items as petitioners contend,
we must grant the motion to dismiss on the basis that
the notice of deficiency is invalid as it relates to
those items. * * * [Citation omitted.]
The language cited by petitioners was unnecessary for the
disposition of that case and should be viewed in its context. In
Katz v. Commissioner, supra at 10, we stated the issue as
follows:
whether the manner in which partnership items are
allocated between a partner in bankruptcy and the
partner’s bankruptcy estate is a determination which,
pursuant to the TEFRA procedures, must be made at the
partnership level. We therefore shall determine our
jurisdiction based on the resolution of this latter
issue.
We held:
The manner in which the distributive share of a partner
in bankruptcy is allocated between the partner and the
bankruptcy estate is not a “partnership item” under
sec. 6231(a)(3), I.R.C. Accordingly, such allocation
need not be resolved in a partnership-level proceeding
pursuant to the uniform audit and litigation procedures
of secs. 6221-6234, I.R.C. * * * [Id. at 5.]
Our holding in Katz did not depend on the status of the NOL
carryover as an “affected item”, and we did not make a
determination that the NOL carryovers were not affected items.
However, since the Commissioner was not challenging the
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