-6-
readjustment of partnership items adjusted in a valid FPAA. See
sec. 6226; Rule 240(c); see also Meserve Drilling Partners v.
Commissioner, T.C. Memo. 1996-72, affd. 152 F.3d 1181 (9th Cir.
1998). The Court has jurisdiction in such a proceeding to
determine partnership items to which the FPAA relates, the proper
allocation of those items among the partners, and the
applicability of any penalty, addition to tax, or additional
amount relating to an adjustment to a partnership item. See sec.
6226(f). We decide herein whether LTD’s reporting on its 1999
return of its ordinary income as NESE fits within this
jurisdiction or, more specifically, whether that reporting is a
partnership item. The term “NESE” denotes:
the gross income derived by an individual from any
trade or business carried on by such individual, less
the deductions allowed by this subtitle which are
attributable to such trade or business, plus his
distributive share (whether or not distributed) of
income or loss described in section 702(a)(8) from any
trade or business carried on by a partnership of which
he is a member * * *. [Sec. 1402(a).3]
The 1999 instructions to the 1999 return generally required LTD
for purpose of that return’s Schedule K, Partner’s Shares of
Income, Credits, Deductions, etc., to report all of LTD’s
ordinary income from trade or business activities as NESE except
3 Sec. 702(a)(8) provides that "In determining his income
tax, each partner shall take into account separately his
distributive share of the partnership's * * * taxable income or
loss, exclusive of items requiring separate computation under
other paragraphs of this subsection."
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