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In respondent’s supplemental brief, filed August 12, 2004,
respondent attempted to amend respondent’s determination to
include the $25,955 of constructive dividends in the Roses’ basis
in their Zephyr interest and thus increase the deficiency
determined against the Roses. Respondent did not seek to raise
this new position at or before trial of these cases.
Furthermore, respondent had not argued that respondent’s
determination to treat a portion of the transfers from PK
Ventures, TBPC, and TPTC to Zephyr as a constructive dividend to
the Roses was incorrect.
In their memorandum in support of their motion for
reconsideration of findings and opinion, filed 2 months after
release of our now-withdrawn opinion, petitioners contended for
the first time that the statutory notice of deficiency sent to
the Roses--
is invalid to the extent it excludes from the Roses’
basis in Zephyr a proportionate share of Zephyr’s
excluded COD income. Moreover, since respondent failed
to adjust Zephyr’s excluded COD income in a FSAA issued
to Zephyr, this Court did not have jurisdiction to
sustain respondent’s adjustment. To be clear,
petitioners do not argue that the Court is without
jurisdiction to determine the Roses’ outside basis in
Zephyr. Rather, petitioners argue only that the Court
did not have jurisdiction to determine the Roses’ (or
any other shareholder’s) share of Zephyr’s excluded COD
income in a shareholder level proceeding.
At the time of hearing on petitioners’ motion for
reconsideration, the parties agreed that the Court lacked
jurisdiction to redetermine the Roses’ basis in their Zephyr
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