* The Honorable Julie A. Robinson, United States District Judge for the

District of Kansas, sitting by designation. 

## F I L E D United States Court of Appeals Tenth Circuit 

### JUL 7 2003 

### PATRICK FISHER Clerk PUBLISH
UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

ARON B. KATZ and PHYLLIS A. KATZ, Petitioners-Appellants, v. Nos. 01-9009, 01-9010, 01-9011 COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.

APPEAL FROM THE UNITED STATES TAX COURT

(T.C. Nos. 181-98, 460-96, 780-97)

Andrew M. Low (Laurence E. Nemirow, with him on the briefs), of Davis Graham & Stubbs LLP, Denver, Colorado, for Petition ers-Appellants. Robert J. Branman, Attorney, Tax Division, Departme nt of Justice (Eileen J. O’Connor, Assistant Attorney General, and Bruce R. Ellisen, Attorney, Tax Division, Department of Justice, with him on the br ief), Washington, D.C., for Respondent-Appellee.

Before LUCERO and HARTZ , Circuit Judges, and ROBINSON , District Judge. *

HARTZ , Circuit Judge.-2-

This case involves the intersection of the laws gov erning income taxes and bankruptcy. Mr. Aron Katz (Taxpayer) was a partnerin a number of partnerships that suffered substantial losses during a year in w hich he filed for bankruptcy. On his income tax return for that year, Taxpayer alloc ated between himself and his bankruptcy estate the losses attributable to his in terests in the various partnerships. The question before us is whether th e Commissioner of Internal Revenue can challenge that allocation in a proceedi ng involving only the Taxpayer, or whether the Commissioner must first br ing a partnership-level proceeding. We hold that a partnership-level proce eding is necessary.
I. Background Taxpayer’s partnerships did not do well in 1990. T he losses attributable to his interests exceeded $19 million. The losses gen erated by one of the partnerships, a real estate investment company call ed Century Centre Associates, Ltd. (Century), accounted for 96.7% of this total. On July 5, 1990, Taxpayer filed a petition for Chapter 7 bankruptcy relief. Althou gh he could have elected to bifurcate his 1990 tax year into two short years, 2 6 U.S.C. (I.R.C.) § 1398(d)(2)(A), Taxpayer opted instead to file a s ingle return for the entire year, resulting in his 1990 income taxes being treated as a post-petition debt not subject to the bankruptcy proceedings.-3-

The Internal Revenue Code and related regulations r equire partnerships to prepare Schedule K-1 forms that report each partner ’s share of partnership income and losses. I.R.C. § 6031; Treas. Reg. §§ 1.6031(b )-1T(a)(1), (3). For the year 1990, Century and several other partnerships filed returns that included two separate K-1 forms relating to Taxpayer. The firstK-1 issued by each of these partnerships concerned Taxpayer in his individual c apacity and showed the income and losses that had accrued prior to Taxpaye r’s filing for bankruptcy. The second K-1 concerned Taxpayer’s bankruptcy estate and reported post-petition tax items. The remaining partnerships of which Taxpaye r was a member did not distinguish between pre-petition and post-petition items in the K-1 forms they prepared, instead allocating all items to Taxpayer. As to these partnerships, Taxpayer filed Notices of Inconsistent Treatment in which he allocated the tax items between himself as an individual and his bankruptcy estate. On his individual tax return for 1990, Taxpayer rep orted that he had suffered over $19 million in losses before he declared bankruptcy. These losses exceeded the amount that he could apply to reduce h is tax liability for 1990, so Taxpayer carried the losses over to tax years 1991, 1992, 1993, and 1994. Disputing the validity of those carryovers, the Com missioner issued notices of deficiency to Taxpayer and his wife, Phyllis Katz, for all four years. (Although the couple had filed separate tax returns for 1990, they filed jointly the next four-4-

years.) The Commissioner contended that Taxpayer c ould not allocate the 1990 partnership losses between himself and his bankrupt cy estate and that Taxpayer’s interest in any partnership losses incurred during 1990 passed to the bankruptcy estate when he filed for bankruptcy. Thus, the Com missioner argued, Taxpayer in his individual capacity could not claim deductions based on those losses. Taxpayer and his wife contested the notices of defi ciency in the Tax Court. The parties settled all matters of dispute except t he treatment of partnership losses. With respect to this issue, Taxpayer argue d that the Tax Court lacked jurisdiction to enforce the notices insofar as theyconcerned adjustments to partnership items. To understand this argument req uires a brief discussion of the governing statute and regulations. Under the Internal Revenue Code, “[p]artnerships, a s such, are not subject to the federal income tax.” Kaplan v. United States , 133 F.3d 469, 471 (7th Cir. 1998). Instead, “partnership income and expenses ‘ pass through’ to the individual partners.” Chimblo v. Comm’r , 177 F.3d 119, 121 (2d Cir. 1999) (citing I.R.C. §§ 701, 6031). Until 1982 the process of reviewing tax returns of individual partners, rather than the return of the partnership itself, created a significant administrative problem. To address tax issues aris ing from a single partnership, the IRS needed to initiate multiple proceedings. Id. “[T]he IRS was forced to conduct distinct investigations for and, where appr opriate, enter separate-5-

settlement agreements with each individual partner. ” Crnkovich v. United States , 202 F.3d 1325, 1328 (Fed. Cir. 2000). In response to this problem, the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA ), I.R.C. §§ 6221-6233, included “unified partnership audit examination and litigation provisions,” which “centralized the treatment of partnership taxation issues, and ensure[d] equal treatment of partners by uniformly adjusting partne rs’ tax liabilities.” Chimblo , 177 F.3d at 121 (internal quotation marks and citat ions omitted). See generally Callaway v. Comm’r , 231 F.3d 106, 107-12 (2d Cir. 2000) (discussing T EFRA treatment of partnerships). Section 6221 of TEFRA states that “[e]xcept as othe rwise provided in this subchapter, the tax treatment of any partnership it em . . . shall be determined at the partnership level.” A partnership-level procee ding is the exclusive means for adjusting a partnership item. See Maxwell v. Comm’r , 87 T.C. 783, 788-89 (1986). The Tax Court lacks authority to make part nership-item adjustments in a partner-level proceeding except in circumstances no t pertinent to this case. See Kaplan , 133 F.3d at 473. A similar rule applies to an item whose tax treatme nt is dependent on the treatment of a partnership item. Such an item is called an “affected item.” See I.R.C. § 6231(a)(5) (“The term ‘affected item’ mean s any item to the extent such item is affected by a partnership item.”). The TaxCourt has explained that-6-

“‘because the tax treatment of an “affected item” d epends upon the partnershiplevel determination, affected items generally canno t be tried as part of a partner’s tax case prior to the completion of the partnership -level proceeding.’” GAF Corp. & Subsidiaries v. Comm’r , 114 T.C. 519 (2000) (quoting Gillilan v. Comm’r , 66 T.C.M. (CCH) 398, 1993 WL 311552 (1993)). The dispositive issue here is whether the Commissio ner’s proposed adjustments to Taxpayer’s income tax liability requ ired an adjustment to either a partnership item or an affected item. The Internal Revenue Code provides a common-sense definition of “partnership item,” but permits the Secretary of the Treasury to provide for appropriate exceptions by r egulation. It states: The term “partnership item” means, with respect to a partnership, any item required to be taken into account for the part nership’s taxable year under any provision of subtitle A to the exten t regulations prescribed by the Secretary provide that, for purpo ses of this subtitle, such item is more appropriately determined at the p artnership level than at the partner level. I.R.C. § 6231(a)(3). Taxpayer argued that “his share of the partnerships ’ 1990 net operating losses were ‘partnership items’ and that the carryf orwards of these losses to subsequent years were ‘affected items.’” Aplt. Br. at 9. To support this claim, he cited to the general rule set forth in Treas. Reg. § 301.6231(a)(3)-1(a)(1)(i): (a) In general. For purposes of subtitle F of the Internal Revenue Code of 1954, the following items which are require d to be taken into account for the taxable year of a partnership under subtitle A of-7-

the Code are more appropriately determined at the p artnership level than at the partner level and, therefore, are partn ership items: (1) The partnership aggregate and each partner’s share of each of the following: (i) Items of income, gain, loss , deduction, or credit of the partnership

. . . . (emphasis added). Consequently, in Taxpayer’s view , the Commissioner could adjust these losses only in a partnership-level pro ceeding. In response to Taxpayer’s argument, the Commissione r relied on Treasury Regulation § 301.6231(c)-7T(a) (the Bankruptcy Regu lation), which specifically addresses the impact of bankruptcy on the character ization of items as partnership items. According to the Commissioner, the regulati on (which will be discussed below) converted Taxpayer’s 1990 partnership losses into nonpartnership items. The Tax Court rejected Taxpayer’s jurisdictional ar gument. It did not, however, rely on the Bankruptcy Regulation. Rather , the court reasoned that the allocation of partnership tax items between the Taxpayer and his bankruptcy estate is not a “partnership item,” an analysis that had not been suggested by the Commissioner. The Tax Court’s decision turned on its view that “apartner in bankruptcy and his bankruptcy estate are appropriately treated as a single partner for purposes of TEFRA procedures.” Katz v. Comm’r , 116 T.C. 5, 12 (2001). In particular, the court said that “once the partnership has deter mined the distributive share of a-8-

partner who happens to be in bankruptcy, there exis ts no statutory obligation upon the partnership to subdivide the distributive share between such partner and his bankruptcy estate.” Id. at 13-14. Thus, “[t]he subdivision of partnership tax items between the two related but independently taxed ent ities is . . . not a determination ‘required to be taken into account fo r the partnership’s taxable year,’” id . at 14, which is a condition for being a “partners hip item” under § 6231(a)(3). In deciding that partnership-level review under § 6 226(f) does not extend to disputes concerning the allocation of losses betwee n a partner and that partner’s bankruptcy estate, the Tax Court observed that its interpretation was consistent with the legislative intent underlying TEFRA. “The determination of the manner in which items . . . are allocated among the variou s partners in a partnership is one best made at the partnership level, because the allocation to one partner necessarily affects the allocation to another.” Id. at 13. In contrast, the court noted, “once the partnership has determined the dis tributive share of a partner who happens to be in bankruptcy,” id. , the subdivision of that partner’s share of a partnership tax item between the partner as an indi vidual and the partner’s bankruptcy estate “will have no effect on the remaining partners,” id. at 14. After denying Taxpayer’s motion to dismiss, the TaxCourt went on to consider the merits of the dispute between Taxpayerand the Commissioner. The-9-

court held that Taxpayer’s allocation of the partne rship losses between himself and his bankruptcy estate was improper, because all the 1990 losses should have been allocated to the bankruptcy estate. Hence, th e loss carryovers for 1991, 1992, 1993, and 1994—which had been based on claims of portions of the 1990 losses on the tax returns for Taxpayer and his wife —were not valid, and there was a tax deficiency for three of these years. Taxpayer and his wife appealed the Tax Court’s deci sion to this court. Their brief explains that while they do not concede the merits of that decision, their sole ground for appeal is that the Tax Court erred in denying the motion to dismiss for lack of jurisdiction. We reverse, holding that the Tax Court lacked autho rity to reallocate the losses because of the Commissioner’s failure to con duct a partnership-level proceeding (except that we dismiss the appeal in Ca se No. 01-9010 on the ground that we lack jurisdiction because in that case the Tax Court ruled that there was no deficiency, see W. W. Windle Co. v. Comm’r , 550 F.2d 43, 45 (1st Cir. 1977)). We first discuss the Bankruptcy Regulation, which i s the source of the Commissioner’s principal argument on appeal. We th en turn to the Commissioner’s arguments in support of the Tax Court’s reasoning.-10-

II. Discussion “We review tax court decisions ‘in the same manner and to the same extent as decisions of the district courts in civil actions tried without a jury.’” Kurzet v.
Comm’r , 222 F.3d 830, 833 (10th Cir. 2000) (quoting I.R.C. § 7482(a)(1)). The Tax Court’s legal conclusions are subject to de nov o review, and its factual findings can be set aside only if clearly erroneous. Id. A. The Bankruptcy Regulation As mentioned above, the Commissioner argues that th e Bankruptcy Regulation converts Taxpayer’s share of 1990 partne rship losses into nonpartnership items. The regulation states: Bankruptcy. The treatment of items as partnership items with respect to a partner named as a debtor in a bankruptcy proc eeding will interfere with the effective and efficient enforcem ent of the internal revenue laws. Accordingly, partnership items of su ch a partner arising in any partnership taxable year ending on o r before the last day of the latest taxable year of the partner with respect to which the United States could file a claim for income tax due in the bankruptcy proceeding shall be treated as nonpartnership items as of the date the petition naming the partner as debtor is filed in b ankruptcy. Treas. Reg. § 301.6231(c)-7T(a). Under this regulation, items that would otherwise b e partnership items are converted to nonpartnership items because the taxab le year in which they arose is too intertwined with the bankruptcy proceeding. Th e taxable years so designated are those “ending on or before the last day of the latest taxable year of the partner-11-

with respect to which the United States could file a claim for income tax due in the bankruptcy proceeding.” Id. It is not surprising that an argument could emerge regarding the meaning of such intricate lang uage. There is no question that the disputed items arose during the partnership year ending on December 31, 1990. What the parties do not agree upon is what was “the latest taxable year of the partner with re spect to which the United States could file a claim for income tax due in the bankruptcy proceeding.” If the last day of that taxable year was on or after December 3 1, 1990, then the regulation provides that the disputed items are to be treated as nonpartnership items. The problem for the Commissioner is that 1989 (whic h, of course, ended on December 31, 1989—well before December 31, 1990) is the latest taxable year of Taxpayer for which the United States could file a c laim in the bankruptcy proceeding. Because Taxpayer elected not to bifurc ate his 1990 tax year into a pre-petition partial year and a post-petition parti al year, his 1990 taxes were treated as a post-petition debt—a personal obligati on not encompassed by the bankruptcy. See In re Johnson , 190 B.R. 724, 726 (Bankr. D. Mass. 1995); In re
Mirman , 98 B.R. 742, 745 (Bankr. E.D. Va. 1989). The Uni ted States thus could not “file a claim . . . in the bankruptcy proceedin g” for Taxpayer’s taxes for 1990 and thereafter.-12-

The Commissioner concedes that “the latest year forwhich the United States could file a claim for [Taxpayer’s] l iability is 1989.” Aple. Br. at 27. He contends, however, that for purposes of the Bankruptcy Regulation, the bankruptcy estate must be identified with the partn er who declared bankruptcy. The bankruptcy estate can continue to incur tax lia bility for the duration of the bankruptcy proceedings. Therefore, as the Commissi oner points out, the IRS could file a claim in the bankruptcy proceedings fo r income tax liabilities incurred by the bankruptcy estate during the tax ye ar 1990 (and thereafter, as long as the bankruptcy continued). Because that tax yea r ended on or after December 31, 1990, he concludes that the disputed p artnership items converted into nonpartnership items under the regulation. In support of his interpretation of the Bankruptcy Regulation, the Commissioner emphasizes a policy justification. He contends that severing a bankrupt partner from partnership-level proceedings promotes the efficient resolution of disputes between the IRS and the othe r partners. The filing of a bankruptcy petition effects a stay on “the commence ment or continuation of a proceeding before the United States Tax Court conce rning the debtor.” 11 U.S.C. § 362(a)(8). According to the Commissioner,“[i]f the tax liability of the debtor or the bankruptcy estate were still affected by a part nership proceeding, the stay imposed by the bankruptcy petition would halt the c ommencement or continuation-13-

of the partnership proceeding, and would prevent th e IRS and the remaining partners from litigating whether any adjustments we re appropriate to the partnership return.” Aple. Br. at 26. Moreover, h e argues, even if the bankruptcy court lifted the stay, ongoing tax court proceeding s might delay and complicate resolution of the bankruptcy proceeding. The Commissioner may be right that public policy favors his reading of the Bankruptcy Regulation. Our task, however, is to interpret the regulation’s language, not to decide public policy. And we are unable to read the words of the regulation as the Commissioner proposes. In our view, it would require a gross distortion of the regulation’s language to read the word “partner” to include the bankruptc y estate. That word appears four times in the regulation: The treatment of items as partnership items with respect to a partner named as a debtor in a bankruptcy proceeding will i nterfere with the effective and efficient enforcement of the internal revenue laws. Accordingly, partnership items of such a partner arising in any partnership taxable year ending on or before the la st day of the latest taxable year of the partner with respect to which the United States could file a claim for income tax due in the bankruptcy proceeding shall be treated as nonpartnership items as of the date the petition naming the partner as debtor is filed in bankruptcy. Treas. Reg. § 301.6231(c)-7T(a) (emphasis added). The first a nd fourth times that the word “partner” is used, the regulation exp ressly refers to the partner’s status as a debtor. This is significant because, a s Taxpayer emphasizes, the-14-

debtor and the bankruptcy estate are distinct entit ies in an individual’s bankruptcy proceeding. See, e.g., In re Smith , 235 F.3d 472, 477-78 (9th Cir. 2000) (“The Bankruptcy Code distinguishes between property of the estate in bankruptcy and property of the debtor. The commencement of a case under the Bankruptcy Code creates an estate and though the estate may acquire property after the commencement of the case, estate property remains d istinct from the debtor’s property.”) (internal citations omitted); Martin v. United States , 159 F.3d 932, 934 (5th Cir. 1998) (“IRC § 1398 treats the bankruptcy estate as a separate entity [from the debtors] for tax purposes . . . .”). The first and fourth references to a “partner” thus cannot be construed as referring to the bankruptcy estate. Given that the second use of the word “partner” refers ba ck to the preceding use (“partnership items of such a partner”), the second use also cannot be read to include the bankruptcy estate. The remaining use of the word “partner” is the oper ative one for our purposes. The defining date for determining whethe r an item should be treated as a nonpartnership item is based on “the latest taxable year of the partner with respect to which the United States could file a cla im for income tax due in the bankruptcy proceeding.” Here, too, the “partner” m ust be the debtor in bankruptcy. A common-sense rule of statutory construction states that “identical words used in different parts of the same act are i ntended to have the same-15-

meaning.” Comm’r v. Keystone Consol. Indus., Inc. , 508 U.S. 152, 159 (1993) (internal quotation marks omitted). We think it is not asking too much of the drafters of our nation’s laws to say that if they u se a term three times in the same sentence, they should be sure that they intend to g ive it the same meaning each time. Accordingly, we agree with Taxpayer that the word “partner” does not encompass the bankruptcy estate and therefore the B ankruptcy Regulation does not convert his 1990 partnership losses into nonpartnership items. B. Tax Court Approach The Commissioner also attempts to defend the Tax Co urt’s ruling, which he paraphrases to say: “[T]he manner in which the dis tributive share of a partner in bankruptcy is allocated between the partner and the bankruptcy estate of that partner is not a ‘partnership item’ under IRC § 6231(a)(3), and need not be made at the partnership level.” Aple. Br. at 30. He ac knowledges that “the total amount of partnership losses for the year is determ ined at the partnership level, and the manner in which those losses are divided am ong the partners of each partnership is also a partnership item.” Id . But he states that “[t]he regulation promulgated by the Secretary to define partnership items, Treas. Reg. § 301.623(a)(3)-1, does not address the possibilitythat one partner will file a bankruptcy petition during the taxable year.” Id . at 31. According to the Commissioner, not only is there “no indication in t he Regulation that the-16-

allocation of a debtor-partner’s loss between the d ebtor-partner and the bankruptcy estate is a partnership item,” id ., but neither does “general tax law require partnerships to take into account on the pa rtnership return the fact that one partner has become a debtor in bankruptcy, and his partnership interest has become property of a bankruptcy estate,” id. at 31-32. Although the premises of the Commissioner’s argument may well be true, his conclusion does not follow. First, the absence of a reference to bankruptcy in the regulation defining partnership items does not imply that there must be some sort of exception in that context. On the contrary , it indicates the general applicability of the regulation to bankrupt partner s. Moreover, the Secretary’s promulgation of a regulation (the Bankruptcy Regulation) specifically to provide for an exception to the general rule when a bankrup tcy is involved strongly suggests that the existence of a bankruptcy would o therwise not be a reason to treat as a nonpartnership item what would be a part nership item under the general regulation. Second, the rule regarding allocation of losses between the debtor-partner and the bankruptcy estate is a red herring. What i s important is that the debtor was a partner during part of the partnership year, so the partnership returns must set forth the debtor’s share of income, loss, etc. It may be that the partnership can report all such items as the debtor’s, and need notprepare a K-1 for the-17-

bankruptcy estate. And perhaps the proper tax treatment of the debtor’s share of income and losses is to allocate all items to the b ankruptcy estate. Nevertheless, the Commissioner has not challenged the propositionthat the partnership return must contain an assignment of income and loss to a partner who has declared bankruptcy, whether the figures be $1 million or $0 , and that these figures are partnership items unless excluded by a regulation. If a figure is wrong, it can be challenged only in a partnership-level proceeding. To say that the allocation is not a partnership item is to confuse the proces s with the result. The statute requires partnership- level proceedings if a partnership item is being challenged. The partnership item is, of course, the result of the allocation of the partnership’s income, losses, etc ; but the allocation process itself is not a partnership item. The requirement of a pa rtnership-level proceeding is triggered regardless of how the partnership item wa s calculated. There may be sound policy reasons for not requiring a full-blownpartnership-level proceeding when an alleged error in one partner’s return affec ts only one other taxpayer rather than all the partners. But for now the law is otherwise.
We DISMISS the appeal in Case No. 01-9010. In Case No. 01-90 09 and Case No. 01-9011, we REVERSE the decision of the Tax Court and REMAND for proceedings consistent with this opinion. We e xpress our appreciation to counsel for the fine appellate briefs.01-9009, 01-9010,01-9011, Katz v. Commissioner of Internal Revenue

ROBINSON , District Judge, dissenting.

I join the court’s opinion as to dismissal of Case No. 01-9010. I respectfully dissent as to the court’s opinion in C ase No. 01-9009 and Case
No. 01-9011. The Tax Court had jurisdiction to enforce the Notic es of Deficiency because there was not a “partnership item” at issue . The issue was whether the net operating loss carryovers in years 1991-1994 we re a tax attribute of Taxpayer’s bankruptcy estate in whole or part, or w hether Taxpayer was entitled to claim the total amount of these carryovers on hi s individual tax returns. This was a dispute between Taxpayer and the bankruptcy e state, and an issue personal to Taxpayer. Thus, the majority mischaracterizes the Commissioner’s “adjustments” to Taxpayer’s tax liability as a part nership or affected item. Although the Commissioner “adjusted” Taxpayer’s liability, it was an adjustment that was personal to Taxpayer and in no way affecte d the liability or K-1s of the other partners in the partnership. Had the net operating loss carryovers been a “partn ership item,” the Tax Court would not have had jurisdiction, for the issu e would have necessarily been resolved at a partnership-level proceeding. The In ternal Revenue Code states that The term “partnership item” means, with respect to a partnership, any item required to be taken into account for the part nership’s taxable year under any provision of subtitle A to the exten t regulations prescribed by the Secretary provide that, for purpo ses of this subtitle,1 Nor is the issue in this case an “affected item” wi thin the meaning of

I.R.C. § 6231(a)(5), which is defined as “any item to the extent such item is affected by a partnership item.” Treas. Reg. § 301. 6231(a)(5)-1(a) includes as (continued...) -2- such item is more appropriately determined at the p artnership level than at the partner level. I.R.C. § 6231(a)(3). The dispute between Taxpayer and the bankruptcy est ate about their rights to claim the net operating loss carryovers in 1991- 1994 is not an item that was required to be taken into account by the partnershi p, either in 1990, the year in which the partnership sustained the loss, or in the subsequent years 1991-1994. While the partnership was required to take into acc ount the distributive shares of the partners in the loss sustained in 1990, the partnership was not required to take into account a single partner’s dispute with a thir d party over claiming the net operating loss carryovers generated by the loss. Nor is this dispute between Taxpayer and his bankruptcy estate an item that is more appropriately determined at the partnership level than at the partner level. Partnership-level proceedings are generally require d when there is a determination of an issue that affects the partners or partnershi p. A partnership-level proceeding is necessary to work out the competing, disputed or relative rights of the partners when those issues are dependent on or affect the rights of the other partners. 11 (...continued)

affected items those “unrelated to the items reflec ted on the partnership return.” To be sure, the Taxpayer’s tax liability is affecte d by a determination that the net operating losses are wholly or partially a tax attr ibute belonging to the bankruptcy estate. But, “affected items” are items that requi re adjustment after and as a consequence of a determination that is necessarily made in a partnership-level proceeding. Affected items include computational ad justments to a partner’s tax liability, after a partnership proceeding results in a change in a partnership item. Examples of affected items include a partner’s basi s in the partnership and penalty, addition to tax or additional amount. Trea s. Reg. § 301.6231(a)(5)-1(b) and (e).

-3- In this case, there was no dispute about the amountof losses by the partnerships or about the partners’ relative shares of the partnership losses. Unlike several of the cases cited by the majority, there was no partnership-level proceeding pending because there was no dispute amo ng or affecting the partners. Taxpayer and the partners do not dispute that the K -1s reflected the correct amounts of their respective distributive shares und er the partnership. Whether or not the net operating loss carryover in this case i s a tax attribute that benefits Taxpayer or the bankruptcy estate has absolutely no effect on Taxpayer’s partners. The regulation promulgated by the Secretary to defi ne partnership items, Treas. Reg. § 301.6231(a)(3)-1, provides general categories of partnership items and is entitled to deference under Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984) and United States v. Mead Corp., 533 U.S. 218, 121 S.Ct. 2164, 150 L.Ed.2d 292 (2001)

. Examples of partnership items are the partnership and each partner’s-4-

share of: income, gain, loss, deduction and credit, exempt income, nondeductible expenses, partnership liabilities, determinations r equiring the partnership’s books and records, contributions, distributions. Treas. R eg. § 301.6231(a)(3)-1(a) and (c). Partnership items also include the accountin g practices and the legal and factual determinations that underlie the determinat ion of amount, timing, and characterization of items of income, credit, gain, loss and deduction. Treas. Reg. § 301.6231(a)(3)-1(b). In fact, the hallmark of a partnership item is that it affects the distributive shares reported to other partners. Blonien v. Comm’r , 118 T.C. 541, 551-552 n. 6 (U.S. Tax Ct. 2002). In contrast, non-partnership items include items personal to the partner. See Hambrose Leasing 1984-5 Ltd. Partnership v.
Comm’r , 99 T.C. 298 (U.S. Tax Ct. 1992)(amounts that the partners have “at risk” with respect to partnership liabilities assumed under I.R.C. § 465); Crop
Associates-1986 v. Comm’r , 113 T.C. No. 15 (U.S. Tax Ct. 1999)(equitable recoupment). Because the dispute between Taxpayer and his bankruptcy estate does not involve a partnership item, the Bankruptcy Regulati on cited by the majority, Treas. Reg. § 301.6231(c)-7T(a), is inapplicable. T he majority’s conclusion that the Bankruptcy Regulation has “general applicability” to bankrupt partners ignores the plain language of the regulation, which is limited to treatment of partnership items. Nothing in the Bankruptcy Regul ation states that all-5-

determinations of whether the debtor or the bankrup tcy estate has the benefit of certain attributes are partnership items. Nor does the Bankruptcy Regulation subject every issue to a partnership-level proceedi ng simply because a bankruptcy was filed. Thus, the applicability of the Bankrupt cy Regulation to the particular facts in this case is irrelevant. Moreover, the C ommissioner’s ruling was in error; there is no statutory or regulatory basis fo r his ruling that the filing of a bankruptcy operates to convert all items (whether p artnership items or not) into “non-partnership items.” Because the Bankruptcy Regulation does not apply in this case, the majority’s analysis of the last day the IRS could f ile a claim is of no consequence. Also of no consequence is the majority’s analysis that the Bankruptcy Regulation cannot be read to include the bankruptcy estate in the word “partner.” In fact, the majority is correct that “partner” does not include bankruptcy estate in its definition. The bankruptcy estate was not a partne r. It did not sign a partnership agreement. It did not have a right to a distributi ve share. It was not in existence at the time of the partnership agreement. Whatever rights it has are by operation of bankruptcy law, and this is not a matter that ca n or should be resolved in a partnership-level proceeding. The amount of the net operating loss carryovers is a given; the only dispute is how much of that amount is attributed to the ben efit of Taxpayer and how much2 Although not controlling, I find persuasive the rea soning of Doe v. (continued...) -6- is attributed to the benefit of the bankruptcy estate. In fact, the majority makes the argument when they posit that: To say that the allocation is not a partnership item is to confuse the process with the result. The statute requires partn ership level proceedings if a partnership item is being challeng ed. The partnership item is, of course, the result of the a llocation of the partnership’s income, losses, etc; but the allocati on process itself is not a partnership item. Majority opinion at 17 (emphasis in the original). What is at issue here is the allocation process between Taxpayer and his bankruptcy estate. The “allocation of the partners hip’s income, losses, etc,” is not at issue. The partnership’s income and losses have been allocated, resulting in partnership items, that is, the relative allocat ion between the partners. But Taxpayer does not dispute the partnership items. Ta xpayer does not dispute the losses attributed to his share of the partnership, nor does the Commissioner dispute the losses attributed to Taxpayer’s share o f the partnership. Taxpayer and the Commissioner dispute the allocation process of an undisputed amount of loss and net operating loss carryovers, as between Taxpayer and a third party, the bankruptcy estate. This is not a matter to be dete rmined at the partnership level– it is a matter of bankruptcy law, with no effect orconsequence on the partnership or the other partners. 22 (...continued)

Comm’r , 116 F.3d 1489, 1997 WL 355357 (10 thCir. June 2, 1997) (unpublished). See 10 thCir. R. 36.3(B). The court in Doe concluded that the Tax Court had jurisdiction to assess certain deficiencies at the individual level in a proceeding involving a subchapter S corporation, which, like apartnership, is taxed through individual shareholders. The court noted that if th e Commissioner’s determination of a deficiency owed by an individual taxpayer is b ased upon information set forth in the original partnership or shareholder re turn rather than on the Commissioner’s own investigation, re-calculation an d re-determination of a partnership item or subchapter S item, then the TaxCourt retains jurisdiction to adjudicate the deficiency in an individual proceedi ng, because there is no “adjustment” to the entity’s return and thus no nee d to follow the entity-level procedures. Doe , 1997 WL at 6-10. -7- For these reasons, I would affirm the decision of the Tax Court.