Opinion ID: 209394
Heading Depth: 2
Heading Rank: 1

Heading: Overview of TEFRA

Text: As partnerships are pass-through entities that do not themselves pay tax, all income, deductions, and credits are allocated to the individual partners. I.R.C. §§ 701-702; Conway v. United States, 326 F.3d 1268, 1271 (Fed.Cir.2003). Partnerships are required to file annual information returns reporting the partners' distributive shares of income, gain, deductions or credits, I.R.C. § 6031, and the individual partners then report their distributive shares on their federal income tax returns, I.R.C. §§ 701-704. In 1982, Congress enacted the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), Pub.L. No. 97-248, 96 Stat. 324. TEFRA created a single unified procedure for determining the tax treatment of all partnership items at the partnership level, rather than separately at the partner level. In re Crowell, 305 F.3d 474, 478 (6th Cir.2002); see AD Global Fund, LLC ex rel. North Hills Holding, Inc. v. United States, 481 F.3d 1351, 1355 (Fed.Cir.2007) (TEFRA is a statutory scheme that intends that adjustment to a partnership tax return be completed in one consistent proceeding before individual partners are assessed for partnership items.). Accordingly, whether a tax item is a partnership item governs how the TEFRA procedures apply. Significantly for this appeal, the code defines the terms partnership item, nonpartnership item, and affected item as follows: (3) Partnership item.The term partnership item means, 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. (4) Nonpartnership item.The term nonpartnership item means an item which is (or is treated as) not a partnership item. (5) Affected item.The term affected item means any item to the extent such item is affected by a partnership item.