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petitioners include the limitation of partnership losses to the
partner’s basis in a partnership interest, the at-risk limitation
under section 465, the passive loss limitation rules under
section 469, and the S corporation loss limitation rules under
section 1366, which are all “affected item bases” for disallowing
losses at the partner level. Respondent reasons that the
statement in the notice of deficiency “nor has it been
established that any loss attributable to Pascal & Co. is
allowable to you, or not limited” (emphasis added) encompasses
the possibility that the loss was not allowable to petitioners
for reasons that were peculiar to their individual tax
circumstances.
Despite the technical inaccuracies3 in respondent’s notice
of deficiency, the existing jurisprudence regarding the
sufficiency of a notice of deficiency favors respondent. It is
well settled that no particular form is required for a notice of
deficiency, and that the Commissioner need not explain how the
3On Schedule E of their 1995 Form 1040 petitioners claimed
losses of $4,087,725 from NASM and $2,941,054 from FAP. However,
the notice of deficiency adjusted $3,468,019 of loss from each of
the S corporations, which is each S corporation’s share of loss
from Pascal & Co. reflected on the tax return filed by UK Lotto.
If the notice of deficiency was adjusting an affected item, there
would have been calculations to redetermine the flow-through
amounts from NASM and FAP. In addition, the notice of deficiency
does not discuss petitioners’ bases, nor do the adjustments take
into account any of the passive income petitioners reported.
None of the adjustments respondent made correspond to any of the
losses petitioners deducted on Schedule E of their Form 1040 or
the accompanying Statement 15.
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Last modified: May 25, 2011