1Cases of the following petitioners are consolidated

herewith: Glenn Nussdorf & Claudine Strum, docket No. 24297-05,

and Stephen & Alicia Nussdorf, docket No. 24301-05.

129 T.C. No. 5

UNITED STATES TAX COURT

ARLENE NUSSDORF, ET AL.,1 Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket Nos. 24289-05, 24297-05, Filed August 16, 2007.

24301-05.

Held: Certain items relating to the purported

contributions of certain Euro options to Evergreen

Trading, LLC, by its respective members, including such

members’ respective bases in such options, are

partnership items, as defined in sec. 6231(a)(3),

I.R.C.

David D. Aughtry, Linda S. Paine, and William E. Buchanan,

for petitioners.

William C. Bogardus, for respondent.
- 2 -

2The Court’s use of the words “members”, “partners”, and

similar words is for convenience only and does not indicate the

Court’s agreement that such words reflect the substance of what

transpired. 

3All section references are to the Internal Revenue Code

(Code) in effect at all relevant times. 

OPINION

CHIECHI, Judge: These cases are before the Court on respondent’s respective motions to dismiss for lack of jurisdiction

(respondent’s respective motions) and petitioners’ respective

motions to dismiss partnership items and affected items (petitioners’ respective motions). We shall grant respondent’s

respective motions and deny petitioners’ respective motions.

Background

The record establishes and/or the respective parties in

these cases do not dispute the following. 

Petitioners in these consolidated cases resided in the State

of New York at the time they filed their respective petitions. 

During the taxable years 1999 and 2000, petitioners Arlene

Nussdorf, Glenn Nussdorf, and Stephen Nussdorf, through certain

flowthrough entities that they respectively owned and that are to

be disregarded for Federal income tax (tax) purposes (flowthrough

entities), were members of or partners2 in Evergreen Trading, LLC

(Evergreen Trading), an entity subject to the provisions of

sections 6221-6234.3 
- 3 -

On November 18, 1999, each of the flowthrough entities

purportedly entered into two option trades involving

Euros with AIG International, Inc. (AIG). One of those option

trades was the purported purchase from AIG on November 18, 1999,

of an option for a stated volume of Euros, which petitioners

refer to as the purchased Euro option. The second option trade

was the sale to AIG on the same date of an option for essentially

the same volume of Euros but at a different so-called strike or

exercise price, which petitioners refer to as the sold Euro

option. The two option trades with AIG into which petitioners’

respective flowthrough entities purportedly entered on November

18, 1999, may be summarized as follows:

Option Premium

Payoff Amount

(U.S. $

Equivalent) Strike Price

Long Position $26,700,190 $548,240,768 1.0535

Short Position $26,433,172 $548,761,167 1.0545

(For convenience, we shall sometimes refer collectively to the

purported purchased Euro option and the purported sold Euro

option as the Euro options.) 

On November 30, 1999, petitioners’ respective flowthrough

entities purportedly contributed their respective Euro options

and $667,500 in cash to Evergreen Trading in exchange for

slightly less than a one-third member or partner interest

therein. 
- 4 -

4CZK/EUR reflects the exchange rate of Czech korunas for

Euros.

During December 1999, Evergreen Trading established two

substantially similar offsetting currency options that were

executed on December 10, 1999, and that had expiration dates of

December 21, 1999, and settlement dates of December 21, 2001. 

The costs of the premiums of those currency options were

$93,861,797 and $93,861,531, respectively. The combined positions were established so that one position was guaranteed to

have a payout equal to the total premiums of both positions,

while the other position was guaranteed to have a minimal payout. 

The first position created a gain if the CZK/EUR4 was at or above

a set exchange rate, while the second position created a similar

gain if the CZK/EUR was below the same exchange rate. The

position not incurring a gain and having a minimal payout was

settled on December 21, 1999, with a loss reported of $89,215,088

after a payout of $4,646,709. The second position was partially

unwound on December 30, 1999, for proceeds of $102,820,761 and a

reported gain of $49,788,977. 

As a result of the above-described currency transactions,

Evergreen Trading reported in its 1999 partnership tax return a

total ordinary loss from currency trades of $39,426,091. A

portion of such loss totaling $11,691,521 was allocated to

petitioners’ respective flowthrough entities. 
- 5 -

On January 18, 2000, the remaining balance of the second

option was unwound resulting in $79,208,185 received by Evergreen

Trading with respect to which Evergreen Trading reported in its

2000 partnership tax return a gain of $38,378,419. A portion of

such gain totaling $11,247,796 was allocated to petitioners’

respective flowthrough entities. 

During the latter part of March 2000, petitioners’ respective flowthrough entities withdrew from Evergreen Trading and

paid a 5-percent withdrawal fee of $159,302. When such entities

withdrew from Evergreen Trading, each received a liquidating

distribution of 192,602 Euros with a fair market value of

$185,438. No other cash or property was distributed to petitioners’ respective flowthrough entities (or to petitioners in these

cases). 

On December 17, 2002, respondent issued a notice of beginning of administrative proceeding with respect to Evergreen

Trading for the taxable year 1999, and on March 19, 2003, respondent issued such a notice with respect to Evergreen Trading for

the taxable year 2000. On September 26, 2005, respondent issued

a notice of final partnership administrative adjustment (FPAA)

with respect to Evergreen Trading for the taxable years 1999 and

2000. 

In the FPAA that respondent issued with respect to Evergreen

Trading for the taxable years 1999 and 2000, respondent made the
- 6 -

following adjustments:

1. It is determined that neither Evergreen Trading,

LLC nor its purported partners have established

the existence of Evergreen Trading, LLC as partnership as a matter of fact.

2. Even if Evergreen Trading, LLC existed as a partnership, the purported partnership was formed and

availed of solely for purposes of tax avoidance by

artificially overstating basis in the partnership

interests of its purported partners. The formation of Evergreen Trading, LLC, the acquisition of

any interest in the purported partnership by the

purported partner, the purchase of offsetting

options, the transfer of offsetting options to a

partnership in return for a partnership interest,

the purchase of assets by the partnership, and the

distribution of those assets to the purported

partners in complete liquidation of the partnership interests, and the subsequent sale of those

assets to generate at a loss, all within a period

of less than six months, had no business purpose

other than tax avoidance, lacked economic substance, and, in fact and substance, constitutes an

economic sham for federal income tax purposes. 

Accordingly, the partnership and the transactions

described above shall be disregarded in full and

any purported losses resulting from these transactions are not allowable as deductions are not

allowed for federal income tax purposes.

3. It is determined that Evergreen Trading, LLC was a

sham, lacked economic substance and, under §

1.701-2 of the Income Tax Regulations, was formed

and availed of in connection with a transaction or

transactions in taxable year 1999, a principal

purpose of which was to reduce substantially the

present value of its partners’ aggregate federal

tax liability in a manner that is inconsistent

with the intent of Subchapter K of the Internal

Revenue Code. It is consequently determined that:

a. the Evergreen Trading, LLC is disregarded and that all transactions engaged

in by the purported partnership are

treated as engaged in directly by its

purported partners. This includes the
- 7 -

determination that the assets purportedly acquired by Evergreen Trading, LLC,

including but not limited to foreign

currency options, were acquired directly by the purported partners.

b. the foreign currency option(s), purportedly contributed to or assumed by Evergreen Trading, LLC, are treated as never

having been contributed to or assumed by

said partnership and any gains or losses

purportedly realized by Evergreen Trading, LLC on the option(s) are treated as

having been realized by its partners.

c. contributions to Evergreen Trading, LLC

will be adjusted to reflect clearly the

partnership’s or purported partners’

income.

4. It is determined that the Euro short positions

(written call options) transferred to Evergreen

Trading, LLC constitute liabilities for purposes

of Treasury Regulation §1.752-6T, the assumption

of which by Evergreen Trading, LLC shall reduce

the purported partners’ bases in Evergreen Trading, LLC in the amounts of $26,433,171 for each of

the three partners, but not below the fair market

value of the purported partnership interest.

5. It is determined that trading losses of

$38,837,363 claimed by Evergreen Trading, LLC are

part of straddle positions as governed by § 1092

and as such are nondeductible losses in the 1999

tax year. Limitations imposed by § 1092 include

the limitation that deductible trading losses

incurred as part of straddle positions are limited

to only those amounts in excess of unrecognized

trading gains.

6. It is determined that neither Evergreen Trading,

LLC nor its purported partners entered into the

option(s) positions or purchase the foreign currency or stock with a profit motive for purposes

of § 165(c)(2).

7. It is determined that, even if the foreign currency option(s) are treated as having been con-
- 8 -

tributed to Evergreen Trading, LLC, the amount

treated as contributed by the partners under section 722 of the Internal Revenue Code is reduced

by the amounts received by the contributing partners from the contemporaneous sales of the call

option(s) to the same counter-party. Thus, the

basis of the contributed option(s) is reduced,

both in the hands of the contributing partners and

Evergreen Trading, LLC. Consequently, any corresponding claimed increases in the outside basis in

Evergreen Trading, LLC resulting from the contributions of the foreign currency option(s) are

disallowed.

8. It is determined that the adjusted bases of the

long call positions (purchased call options), zero

coupon notes, and other contributions purportedly

contributed by the partners to Evergreen Trading,

LLC has not been established under I.R.C. § 723. 

It is consequently determined that the partners of

Evergreen Trading, LLC have not established adjusted bases in their respective partnership interests in an amount greater that zero (-0-).

9. It is further determined that, in the case of a

sale, exchange, or liquidation of Evergreen Trading, LLC partners’ partnership interests, neither

the purported partnership nor its purported partners have established that the bases of the partners’ partnership interests were greater than zero

for purposes of determining gain or loss to such

partners from the sale, exchange, or liquidation

of such partnership interest.

10. Accuracy-Related Penalties

It is determined that the adjustments of partnership items of Evergreen Trading, LLC are attributable to a tax shelter for which no substantial

authority has been established for the position

taken, and for which there was no showing of reasonable belief by the partnership or its partners

that the position taken was more likely than not

the correct treatment of the tax shelter and related transactions. In addition, all of the

underpayments of tax resulting from those adjustments of partnership items are attributable to, at

a minimum, (1) substantial understatements of
- 9 -

income tax, (2) gross valuation misstatement(s),

or (3) negligence or disregarded rules or regulations. There has not been a showing by the partnership or any of its partners that there was a

reasonable cause for any of the resulting underpayments, that the partnership or any of its partners acted in good faith, or that any other exceptions to the penalty apply. It is therefore determined that, at a minimum, the accuracy-related

penalty under Section 6662(a) of the Internal

Revenue Code applies to all underpayments of tax

attributable to adjustments of partnership items

of Evergreen Trading, LLC. The penalty shall be

imposed on the components of underpayment as follows:

A. a 40 percent penalty shall be imposed on

the portion of any underpayment attributable to the gross valuation misstatement as

provided by Sections 6662(a), 6662(b)(3),

6662(e), and 6662(h) of the Internal Revenue Code.

B. a 20 percent penalty shall be imposed on

the portion of the underpayment attributable to negligence or disregard of rules

and regulations as provided by Sections

6662(a), 6662(b)(1), 6662(c) of the Internal Revenue Code.

C. a 20 percent penalty shall be imposed on

the underpayment attributable to the substantial understatement of income tax as

provided by sections 6662(a), 6662(b)(2),

and 6662(d) of the Internal Revenue Code.

D. a 20 percent penalty shall be imposed on

the underpayment attributable to the substantial valuation misstatement as provided

by Sections 6662(a), 6662(b)(3), and

6662(e) of the Internal Revenue Code. 

[Reproduced literally.] 

On September 26, 2005, respondent issued respective notices

of deficiency to petitioners in these cases for the taxable years

1999 and 2000. In those respective notices, respondent made the
- 10 -

5For convenience, we quote from the notice of deficiency

that respondent issued to petitioner Arlene Nussdorf in the case

at docket No. 24289-05. That notice of deficiency is virtually

the same as the respective notices of deficiency that respondent

issued to petitioners in the cases at docket Nos. 24297-05 and

24301-05. 

following determinations:5

1. The $11,606,771 and $15,301,146 grantor trust

losses for 1999 and 2000 flowed from Evergreen

Trading to the Arlene Nussdorf Trust then to your

1040s, interest income in the amounts of ($2,488)

and ($2,842) for 1999 and 2000 flowed from Evergreen Trading to the Arlene Nussdorf Trust then to

your 1040s, Investment interest of $83,527 and

$195,776 for 1999 and 2000 flowed from Evergreen

Trading to the Arlene Nussdorf Trust then to your

1040s, Short term capital gain of ($324) for 2000

flowed from Evergreen Trading to the Arlene

Nussdorf Trust then to your 1040. All of these

items are disallowed because you have failed to

establish (1) that the purported loss was sustained in any amount by either you or any entity

in which you held an interest, (2) that the transaction purportedly generating the loss in question

was entered into for profit within the meaning of

I.R.C. Section 165(c)(2), or (3) that any portion

of the loss in question is allowable as a deduction under any other provision of the Internal

Revenue Code. You have also failed to establish

that, even if loss was sustained and would otherwise be deductible, any deduction relating to the

loss is not specifically limited or disallowed by

any provision of the Internal Revenue Code, including without limitation §§165, 183, 212,

704(d), 1366(d), or 465.

2. It is further determined that to the extent the

loss in question is attributable to an investment

in offsetting options, the loss is disallowed

because the transactions were entered into for

purposes of tax avoidance. The transactions giving rise to the loss, including the formation of

the purported partnership, Arlene Nussdorf Trust’s

acquisition of an interest in the partnership, the

purchase of the offsetting options, the subsequent
- 11 -

transfer of the options by the Arlene Nussforf

Trust to a partnership in return for a partnership

interest, the purchase of assets by the partnership, and the distribution of those assets to the

Arlene Nussdorf Trust in complete liquidation of

it’s partnership interest, and the subsequent sale

of those assets to generate at a loss, all within

a period of less than 5 months, had no business

purpose other than tax avoidance, lacked economic

substance, and, in fact and substance, constitutes

an economic sham for federal income tax purposes. 

As such, any loss incurred in connection with the

transactions in question are not deductible.

3. It is further determined that the loss deduction

claimed on your 1999 and 2000 federal income tax

return is disallowed because the Evergreen Trading

partnership with reference to which you determined

basis in the Euros sold is a sham and should not

be recognized for federal income tax purposes.

4. It is further determined that the deductions referred to under 1) claimed as a loss for tax years

1999 and 2000 are disallowed because you have

failed to establish the basis in the partnership

interests in Evergreen Trading held by the Arlene

Nussdorf Trust was greater than zero. You have

failed to establish the basis in the Euros sold or

disposed of was greater than zero ($0) for purposes of determining the amount of the purported

loss under §165(b).

5. It is further determined that the deduction for

the loss claimed is disallowed to the extent that

the provisions of Chapter 1, Subchapter K of the

Internal Revenue Code were used to calculate basis

in the Property sold. Evergreen Trading was

formed or availed of in connection with a transaction or transactions in taxable years 1999 and

2000 a principal purpose of which was to reduce

substantially the present value of your federal

tax liability in a manner that is inconsistent

with the intent of Subchapter K of the Internal

Revenue Code. The manner in which you and Evergreen Trading accounted for the foreign currency

option transactions in question violated the intent of Subchapter K. Accordingly, the parties’

accounting for the transactions should be
- 12 -

adjusted, pursuant to the authority contained in

Treas. Reg. § 1.701-2, to achieve results that are

consistent with the intent of subchapter K by

ignoring the existence of the partnership, or

treating transactions purportedly engaged in by

the partnership as engaged in directly by the

purported partners.

6. It is further determined, in the alternative, that

the loss claimed on your 1999 and 2000 federal

income tax returns should be decreased by the

items listed under 1) in the amount of $11,687,810

and $15,495,756 to reflect the limitation on

Arlene Nussdorf Trust’s adjusted basis in it’s

partnership interests resulting from it’s contribution of it’s position(s) in the option transaction(s) to the partnerships, pursuant to Treas.

Reg. § 1.752-06T.

7. It is further determined, in the alternative, that

the loss claimed on your 1999 and 2000 federal

income tax return should be decreased in the

amount of $11,687,810 and $15,495,756 to limit any

loss incurred by you and the partnership in connection with the option transaction to the amount

actually at risk in the transaction, pursuant to

Internal Revenue Code § 465(b)(4). 

8. It is further determined, in the alternative, that

the loss claimed on your 1999 and 2000 federal

income tax return should be decreased by the

amount of $11,687,810 and $15,495,756 to reflect

the fact that the amount invested in the option

transaction purportedly generating the losses

claimed represents a single, unitary investment of

$26,700,190 in a single option position rather

than a net investment in the same amount in offsetting option positions.

9. It is further determined that no deduction is

allowed for any legal, accounting, consulting and

advisory fees claimed since you failed to establish that such expenditures were incurred, and if

incurred, are deductible under any provision of

the Internal Revenue Code, including but not limited to Internal Revenue Code §§ 183 and 212.
- 13 -

6For convenience, we quote from the petition filed in the

case at docket No. 24289-05. That petition is virtually the same

as the respective petitions filed in the cases at docket Nos.

24297-05 and 24301-05.

10. The partnership’s primary purpose was for the

creation of tax losses. The tax losses reported

in the 1999 tax year are straddle transactions as

defined by IRC 1092. As such the losses are subject to offsetting of the unrecognized gains reported in the 2000 tax year. Additionally, the

partnership is disregarded for federal tax purposes with all transactions being reversed and

previously reported inflated basis if the partners

relating to contribution of offsetting long and

short currency positions are disregarded along

with reported capital losses, investment interest

expense, distributed property and capital contributions reversed in their entirety and all transactions are treated as having been engaged in by

the partners directly. [Reproduced literally.]

Petitioners in these cases timely filed petitions in response to the respective notices of deficiency that respondent

issued to them. In those respective petitions, petitioners

alleged in pertinent part that petitioners invoked “the jurisdiction of this Court primarily for the purpose of confirming that

the Notice [of deficiency] is invalid and no jurisdiction exists”

and that “The adjustments and penalties in the Notice [of deficiency] constitute partnership and/or affected items * * * under

Code Sections 6221 and 6231.”6 Petitioners further alleged in

pertinent part in the respective petitions in these cases:

e. No partnership proceeding has yet been

commenced under Section 6226, much less

concluded.

f. On the same day Respondent issued the
- 14 -

7GN Investments, LLC, is a flowthrough entity that petitioner Glenn Nussdorf used in order to become a member of or

partner in Evergreen Trading. 

Notice, September 26, 2005, Respondent

also issued a notice of Final Partnership Administrative Adjustment

(“FPAA”) to Evergreen Trading.

g. Consistent with the precedent of this

Court in, inter alia, Maxwell, supra,

the ostensible Notice is a nullity.

Around February 21, 2006, petitioners Glenn Nussdorf and

Claudine Strum in the case at docket No. 24297-05 filed on behalf

of GN Investments, LLC,7 a partner other than the tax matters

partner of Evergreen Trading, a complaint in the United States

Court of Federal Claims that alleges error in the adjustments

made in the FPAA issued with respect to Evergreen Trading for the

taxable years 1999 and 2000. That case is still pending in that

Court.

Discussion

In respondent’s respective motions, respondent asks the

Court to dismiss these cases for lack of jurisdiction on the

ground that the respective notices of deficiency for the taxable

years 1999 and 2000 that respondent issued to petitioners in

these cases are invalid. That is because, according to respondent, those notices contain only determinations that constitute

partnership items, as defined in section 6231(a)(3), or affected

items, as defined in section 6231(a)(5), relating to Evergreen
- 15 -

8With respect to the affected items, respondent points out

that the partnership proceeding for the taxable years 1999 and

2000 with respect to Evergreen Trading is currently pending in

the United States Court of Federal Claims. 

9With the exception of the determination set forth in paragraph 8 of the respective notices of deficiency in question,

petitioners agree with respondent that the determinations in

those notices constitute partnership items, as defined in sec.

6231(a)(3), or affected items, as defined in sec. 6231(a)(5),

relating to Evergreen Trading.

10See supra note 5. 

11For convenience, we quote from petitioner’s motion in the

case at docket No. 24289-05. That motion is virtually the same

(continued...)

Trading.8

In petitioners’ respective motions, petitioners ask the

Court to dismiss these cases for lack of jurisdiction as to all

the determinations in the respective notices of deficiency for

the taxable years 1999 and 2000 that respondent issued to them

except the determination set forth in paragraph 8 of those

notices.9 That paragraph stated:10

It is further determined, in the alternative, that the

loss claimed on your 1999 and 2000 federal income tax

return should be decreased by the amount of $11,687,810

and $15,495,756 to reflect the fact that the amount

invested in the option transaction purportedly generating the losses claimed represents a single, unitary

investment of $26,700,190 in a single option position

rather than a net investment in the same amount in

offsetting option positions.

In support of petitioners’ position in petitioners’ respective motions that the Court has jurisdiction over the abovequoted determination, petitioners argue:11
- 16 -

11(...continued)

as petitioners’ respective motions in the cases at docket Nos.

24297-05 and 24301-05.

12For convenience, we quote from respondent’s response to

petitioner’s motion in the case at docket No. 24289-05. That

response is virtually the same as respondent’s respective responses to petitioners’ respective motions in the cases at docket

Nos. 24297-05 and 24301-05.

10. The determination of the cost basis of the

Purchased Euro Option in the hands of Petitioner is a

pure nonpartnership item that must be determined in

this individual proceeding. Although that cost basis

(along with the cash contributed) becomes the basis of

* * * [the partner’s] partnership interest [in Evergreen Trading], the later contribution does not convert

a nonpartnership issue into a partnership item. Just

as if Ms. Nussdorf [petitioner in the case at docket

No. 24289-05] had purchased a partnership interest from

an outsider, the determination of Ms. Nussdorf’s cost

basis in her Purchased Euro Option is irrelevant to any

other partner and cannot be determined by examining the

partnership books. * * *

11. The cost basis of the Purchased Euro Option

in the hands of Ms. Nussdorf must be determined by

looking to I.R.C. § 1012 and the authorities thereunder

* * *.

12. An issue concerning the cost basis of property in the hands of the taxpayer, pre-contribution,

inevitably turns on law and facts unique to the taxpayer and the particular property in question, which

are the hallmark of “nonpartnership items.” * * * To

consider issues “peculiar to a single partner” as

partnership items, even those relating to partnership

gains or losses, would “blur or erase . . .the distinction between proceedings involving partnership items

and those involving nonpartnership items” and “would be

contrary to the system of separate treatment of partnership and nonpartnership issues Congress established

by enacting TEFRA.” [Reproduced literally, citations

omitted.] 

Respondent counters:12
- 17 -

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”. 

5. The petitioner contends the explanatory language 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, petitioner 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 regulations. * * * the purported partnership here was required 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 partner). 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 partnership 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
- 18 -

14Sec. 1.723-1, Income Tax Regs., promulgated under sec. 723

further provides in pertinent part:

(continued...)

such information.

8. In determining its basis in the contributed

options, the purported partnership was required to take

into account the amount and character of the contribution, which included the fair market value and basis of

the contribution, whether the obligation leg was a

“liability” assumed by the partnership, and whether the

legs of the options needed to be aggregated. * * *

[Citations omitted.] 

We agree with respondent. Section 6231(a)(3) defines the

term “partnership item” to mean

with respect to a partnership, any item required to be

taken into account for the partnership’s taxable year

under any provision of subtitle A to the extent regulations prescribed by the Secretary provide that, for

purposes of this subtitle, such item is more appropriately determined at the partnership level than at the

partner level.

Section 6231(a)(4) defines the term “nonpartnership item” to

mean “an item which is (or is treated as) not a partnership

item.”

Section 6231(a)(5) defines the term “affected item” to mean

“any item to the extent such item is affected by a partnership

item.”

Section 723 provides in pertinent part that the basis of

property contributed to a partnership by a partner is the adjusted basis of such property to the contributing partner at the

time of the contribution.14 Thus, in order for a partnership to
- 19 -

14(...continued)

Since such property [contributed to the partnership by

a partner] has the same basis in the hands of the

partnership as it had in the hands of the contributing

partner, the holding period of such property for the

partnership includes the period during which it was

held by the partner. * * *

determine, as required by section 723, its basis in the property

that a partner contributed to it, the partnership is required to

determine the basis of such partner in such property. In making

those determinations, the partnership is required, inter alia, to

determine the character of any property received by the partnership, such as whether it is a contribution or a loan. 

In the instant cases, in order for Evergreen Trading to

determine, as required by section 723, its respective bases in

the properties that its partners purportedly contributed to it,

Evergreen Trading was required to determine the respective bases

of such partners in such properties. In making those determinations, Evergreen Trading was required, inter alia, to determine

the character of any property that Evergreen Trading received

from each member, such as whether it was a contribution or a loan

and whether any such property received from each member should be

aggregated with other property received from each such member. 

The following regulations promulgated under section

6231(a)(3), which defines the term “partnership item”, provide

that the above-described items relating to the purported contributions of certain properties to Evergreen Trading by its respec-
- 20 -

15Sec. 301.6231(a)(3)-1(b), Proced. & Admin. Regs., further

provides:

(b) Factors that affect the determination of

partnership items.-– The term “partnership item” includes the accounting practices and the legal and

factual determinations that underlie the determination

of the amount, timing, and characterization of items of

income, credit, gain, loss, deduction, etc. * * *

tive members, with respect to which Evergreen Trading was required make certain determinations, are partnership items. 

Section 301.6231(a)(3)-1(a)(4), Proced. & Admin. Regs., states

that the following items, inter alia, which are required to be

taken into account under subtitle A of the Code, are more appropriately determined at the partnership level than at the partner

level and therefore are partnership items:15

(1) The partnership aggregate and each partner’s

share of each of the following:

* * * * * * *

(v) Partnership liabilities (including

determinations with respect to the amount of

the liabilities, whether the liabilities are

nonrecourse, and changes from the preceding

taxable year); * * *

* * * * * * *

(4) Items relating to the following transactions,

to the extent that a determination of such items can be

made from determinations that the partnership is required to make with respect to an amount, the character

of an amount, or the percentage interest of a partner

in the partnership, for purposes of the partnership

books and records or for purposes of furnishing information to a partner: 

(i) Contributions to the partnership * * * 
- 21 -

Section 301.6231(a)(3)-1(c), Proced. & Admin. Regs., which

provides illustrations of section 301.6231(a)(3)-1(a)(4), Proced.

& Admin. Regs., states in pertinent part:

(c) Illustrations.--(1) In general.-- This paragraph (c) illustrates the provisions of paragraph

(a)(4) of this section [301.6231(a)(3)-1]. The determinations illustrated in this paragraph (c) that the

partnership is required to make are not exhaustive;

there may be additional determinations that the partnership is required to make which relate to a transaction listed in paragraph (a)(4) of this section. The

critical element is that the partnership needs to make

a determination with respect to a matter for the purposes stated; failure by the partnership actually to

make a determination (for example, because it does not

maintain proper books and records) does not prevent an

item from being a partnership item. 

(2) Contributions.-– For purposes of its books and

records, or for purposes of furnishing information to a

partner, the partnership needs to determine: 

(i) The character of the amount received from a partner (for example, whether

it is a contribution, a loan, or a repayment

of a loan); 

* * * * * * *

(iv) The basis to the partnership of

contributed property (including necessary

preliminary determinations, such as the partner’s basis in the contributed property).

To the extent that a determination of an item relating

to a contribution can be made from these and similar

determinations that the partnership is required to

make, therefore, that item is a partnership item. To

the extent that the determination requires other information, however, that item is not a partnership item. 

For example, it may be necessary to determine whether

contribution of the property causes recapture by the

contributing partner of the investment credit under

section 47 in certain circumstances in which that

determination is irrelevant to the partnership. 
- 22 -

16In determining whether any property that Evergreen Trading

received from each member was a contribution or a liability,

Evergreen Trading was required to determine whether the so-called

obligation leg (i.e., the short position) of the Euro options in

question was a liability that Evergreen assumed. 

We conclude that the following determinations of certain

items relating to the purported contributions of the Euro options

in question to Evergreen Trading by its respective members can be

made from determinations that Evergreen Trading was required to

make for purposes of Evergreen Trading’s books and records or for

purposes of furnishing information to each member: The character

of any property that Evergreen Trading received from each member,

such as whether any such property received from each member was a

contribution or a loan16 and whether any such property should be

aggregated with other property received from each such member,

and the basis to Evergreen Trading of any property contributed to

it by each member, including necessary preliminary determinations, such as the basis of each such member in such property. 

See sec. 301.6231(a)(3)-1(a)(4), -1(c)(2), Proced. & Admin. Regs. 

We further conclude that none of such determinations relating to

the purported contributions of the Euro options in question to

Evergreen Trading by its respective members required information

other than the information that Evergreen Trading was required to

use in making such determinations that it was required to make

for purposes of its books and records or for purposes of furnishing information to a member. See id.
- 23 -

We hold that the determination set forth in paragraph 8 of

the respective notices of deficiency that respondent issued to

petitioners in these cases relates to certain partnership items

described above. We further hold that we do not have jurisdiction over those items. E.g., Trost v. Commissioner, 95 T.C. 560

(1990); Maxwell v. Commissioner, 87 T.C. 783 (1986). We also

hold, and respondent and petitioners agree, that we do not have

jurisdiction over the remaining determinations set forth in those

respective notices because those remaining determinations relate

to partnership items, e.g., Trost v. Commissioner, supra; Maxwell

v. Commissioner, supra, or affected items, e.g., GAF Corp. &

Subs. v. Commissioner, 114 T.C. 519 (2000); N.C.F. Energy Partners v. Commissioner, 89 T.C. 741 (1987).

We have considered all of the contentions and arguments of

petitioners that are not discussed herein, and we find them to be

without merit and/or irrelevant.

To reflect the foregoing, 

Orders granting respondent’s

respective motions and denying

petitioners’ respective motions and

dismissing these cases for lack of

jurisdiction will be entered.