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the partnership tax return. Maxwell v. Commissioner, supra at
790; sec. 301.6231(a)(3)-1(a)(1)(i), Proced. & Admin. Regs.
Section 6231(a)(4) defines the term “nonpartnership item” as
“an item which is (or is treated as) not a partnership item.”
Section 6231(a)(5) provides that the term “affected item” means
“any item to the extent such item is affected by a partnership
item.” An affected item is by definition neither a partnership
item nor a subchapter S item. Dial USA, Inc. v. Commissioner, 95
T.C. 1, 5 (1990). An affected item, rather than being
universally applicable to every partner, is peculiar to a
particular partner’s tax posture. Maxwell v. Commissioner, supra
at 790.
Petitioners argue that the notice of deficiency shows that
respondent has adjusted partnership items reflected in the 1995
tax return of UK Lotto. Respondent maintains the items adjusted
in the notice of deficiency were not partnership items but
affected items that were ultimately disallowed on petitioners’
tax returns for reasons that were unique to petitioners’
circumstances.
The notice of deficiency potentially disallows the loss on
three levels: The partnership level, the S corporation level,
and the individual partner level. We will address the parties’
arguments in the context of each level.
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