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Discussion
I. Petitioners’ Motion To Dismiss for Lack of Jurisdiction
Petitioners’ motion to dismiss for lack of jurisdiction
focuses on whether the disallowed losses are partnership items
that must be adjusted at the partnership level. If we find that
those losses are partnership items, then we do not have
jurisdiction over respondent’s adjustments in the notice of
deficiency because such items may not be adjusted in an
individual deficiency proceeding. See sec. 6230(a)(1).
TEFRA provisions divide disputes arising from “partnership
items” from those arising from “nonpartnership items”. Maxwell
v. Commissioner, 87 T.C. 783, 787 (1986) (citing section
6231(a)(3) and (4)). If the tax treatment of a partnership item
is at issue, the statute requires the matter to be resolved at
the partnership level. Sec. 6221; Maxwell v. Commissioner, supra
at 787-788. Section 6231(a)(3) defines a partnership item as
“any item required to be taken into account for the partnership’s
taxable year * * * to the extent regulations prescribed by the
Secretary provide that, for purposes of this subtitle, such item
is more appropriately determined at the partnership level than at
the partner level.” Partnership items under section 6231(a)(3)
and the applicable regulations include items of loss reflected on
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