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the partnership or the transaction the partnership engaged in was
a sham, that would not necessarily mean petitioners are not
entitled to an individual deduction for legal, accounting,
consulting, and advisory fees. Further, Andantech is
inapplicable because neither this Court nor the Court of Appeals
for the D.C. Circuit resolved the issue of whether a partner’s
individual deductions would be classified as a partnership item
or an affected item in the event that the transaction at issue
were declared to be a sham.
We find that even if the partnership is a sham, we still
retain jurisdiction over the deduction for legal, accounting,
consulting, and advisory fees. The result would be the same even
if TEFRA applied to the partnership. The notice of deficiency
disallows the deduction at the individual level. Petitioners
claimed the deduction on their individual return. The deduction
was not claimed on the partnership return nor claimed by
petitioners as their distributive share of any deduction on the
partnership return. The disallowance of the deduction at the
individual level did not flow from a deduction disallowed at the
partnership level, nor is the legality of the deduction at the
individual level necessarily affected by a determination at the
partnership level. Petitioners concede that they are not
entitled to the deduction for the items to which paragraph 4(g)
of the petition refers. It is irrelevant whether petitioners
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Last modified: November 10, 2007