-5-
for San Francisco. The parties then submitted it for decision on
stipulated facts.
Discussion
As a general rule, partnerships don’t pay taxes, and items
of a partnership’s income, deductions, and credits are supposed
to be reflected on its partners’ individual tax returns. See
sec. 701. Before TEFRA, the IRS adjusted these partnership items
after separately auditing each partner. This easily led to
inconsistent adjustments, and TEFRA’s requirement that the
Commissioner conduct audits at the partnership level was supposed
to ensure the uniform adjustment of partnership items. Maxwell
v. Commissioner, 87 T.C. 783, 787 (1986); H. Conf. Rept. 97-960,
at 599-600 (1982), 1982-2 C.V. 600, 662-63. Though the
procedures are complicated, the desired result is easy to
understand--a final determination concerning a partnership item
that binds all the partners and treats them equally. See sec.
6221; Maxwell, 87 T.C. at 787-88.
TEFRA audits, with their sometimes arcane distinctions
between “partnership,” “affected,” and “nonpartnership” items,
can be burdensome, so Congress chose to keep the old audit rules
under which each partner resolves his tax liability with the IRS
separately, for “small partnerships.” Tax Compliance Act of 1982
and Related Legislation: Hearings on H.R. 6300 Before the House
Committee on Ways and Means, 97th Cong., 2d Sess. 259-61 (1982).
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