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5. The petitioner contends the explanatory lan-
guage in paragraph eight[13] allows the Court in this
proceeding to determine the pre-contribution cost basis
of a purchased Euro option in the hands of petitioner.
They contend that the basis of the purchased Euro
option before its contribution to the partnership is a
nonpartnership item that must be determined in this
partner-level proceeding and that such basis should be
determined without considering the effect on the basis
of the offsetting sold Euro option. In effect, peti-
tioner contends the offsetting options should not be
integrated.
6. Petitioner’s contentions are wrong. The
statutory notice of deficiency, including paragraph
number eight, challenge[s] the so-called Son of Boss
transaction that involve[s] purported contribution of
an option spread to a partnership. This contribution
was an integral and vital part of the transaction.
Petitioner used the contribution to inflate her basis
in the partnership. Petitioner then attached this
inflated basis to the assets distributed to petitioner
by the partnership. See I.R.C. § 732(b).
7. Section 6231(a)(3) provides that the term
“partnership item” includes any item required to be
taken into account for the partnership’s taxable year
under Subtitle A to the extent provided by the regula-
tions. * * * the purported partnership here was re-
quired under Subtitle A of the Code to determine the
partners’ basis in the contributed options. See I.R.C.
§ 723 (partnership receives carryover basis from part-
ner). Treas. Reg. § 301.6231(a)(3)-1(c)(2)(iv) makes
this carryover basis a partnership item under section
6231(a)(3). Section 6221 requires such partnership
item to be determined in a partnership proceeding
rather than in a deficiency proceeding. * * * Contrary
to petitioner’s contention, the status of an item as a
partnership item depends solely on whether the partner-
ship must determine the item under Subtitle A and
whether the regulations make such an item a partnership
item, not on where the partnership has to look to find
13Respondent indicates in respondent’s respective motions
that the determination set forth in paragraph 8 of the respective
notices of deficiency in question “is commonly referred to as the
integration argument”.
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Last modified: November 10, 2007