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We also consider it inappropriate to opine on the hypothetical
potential adjustments that respondent might propose if any of the
three individuals was in fact a partner of LTD.
Nor do we conclude that LTD’s reporting of its ordinary
income as NESE is an item that the regulations provide is more
appropriately determined at the partnership level than at the
partner level. Section 301.6231(a)(3)-1, Proced. & Admin. Regs.,
lists those items that are partnership items because they are
more appropriately determined at the partnership level. In
relevant part, that list includes a partnership’s
characterization of its items of income, credit, gain, loss, or
deduction. As discussed above, LTD was not required at the
partnership level to characterize the amount of its ordinary
income that was in fact NESE. LTD was required at that level to
determine the entity status of its three direct partners and to
report perfunctorily its ordinary income as NESE except to the
extent that the ordinary income was allocated to a direct partner
that was a limited partner, estate, trust, corporation, exempt
organization, or IRA. LTD was not required to determine the
identity of its indirect partners, and it was not required to
determine whether any member of those indirect partners was
itself a passthrough entity. LTD also was not required to
determine the ultimate recipients of its ordinary income. Each
of these matters that LTD was not required to determine had no
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