Olsen-Smith, LTD., Smith-Olsen, PLC, Tax Matters Partner - Page 1

                    T.C. Memo. 2005-174                                               

                               UNITED STATES TAX COURT                                

                        OLSEN-SMITH, LTD., SMITH-OLSEN, PLC,                          
                         TAX MATTERS PARTNER, Petitioner v.                           
                    COMMISSIONER OF INTERNAL REVENUE, Respondent                      

               Docket No.  22081-03.            Filed July 18, 2005.                  

                    L is a general partnership the direct partners of                 
               which are three limited liability companies (LLCs).  P                 
               amended its petition in this TEFRA partnership-level                   
               proceeding to allege that L’s net earnings from self-                  
               employment (NESE) were zero instead of $627,736 as                     
               reported or $696,807 as determined by R.  P argues that                
               L has no “NESE”, as defined in sec. 1402(a), I.R.C.,                   
               because neither L nor any of its partners has a partner                
               or member who is an individual.  R moves to strike P’s                 
               allegation, asserting that the Court lacks jurisdiction                
               in this proceeding to decide whether L has an indirect                 
               partner who is an individual.                                          
                    Held:  Because a determination of the ownership of                
               a passthrough entity that is a direct partner in a                     
               partnership may involve information not usually                        
               maintained by the partnership, a determination of the                  
               members of the LLCs (and thus indirect partners of L)                  
               is a nonpartnership item that the Court is not allowed                 
               to decide in this TEFRA partnership-level proceeding.                  

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