Commissioner, 83 T.C. 742, 747-748 (1984) (stating that where a statute is clear on its face, we require unequivocal evidence of legislative purpose before construing the statute so as to override the plain meaning of the words used therein). Section 1374, as amended, is applicable to the 10year period after an S corporation's "most recent election". Sec. 1374(d)(9).

Petitioner contends that there is no provision in the transition rule, or section 1374, as amended, making section 1374(d)(9), as amended, applicable if a qualified corporation withdraws its S election. Respondent concedes that petitioner "made a valid election" to be an S corporation before 1989. Respondent, however, contends that, pursuant to section 1374(d)(9), as amended, petitioner's "most recent election" (i.e., 1994 S election) is the election to which section 1374, as amended, refers. Consequently, respondent contends that section 1374, as amended, "by its own literal terms", is applicable to petitioner's 1994, 1995, and 1996 taxable years. We agree.

In 1989, when petitioner became a C corporation, the transition rule became inapplicable. In 1994, petitioner made an S election, and thus became subject to section 1374, as amended, and in effect that year. TRA section 633(d)(8) is applicable in the case of an S election before January 1, 1989, while section 1374, as amended, is applicable to entities electing S corporation status after December 31, 1988. In determining the applicability of section 1374, as amended, section 1374(d)(9), as amended, explicitly directs us to petitioner's "most recent" S corporation election (i.e., petitioner's 1994 election). Our holding is a straightforward application of section 1374, as amended, to petitioner's 1994, 1995, and 1996 taxable years. We also note that our holding is consistent with the legislative history accompanying TRA section 633. See H. Conf. Rept. 99–841 (Vol. II), supra at II-198 to II-207, 1986–3 C.B. (Vol. 4) at 198-207. Accordingly, the TRA section 633(d) transition rule is not applicable to petitioner's years in issue.

Contentions we have not addressed are moot, irrelevant, or meritless.

To reflect the foregoing,

Decision will be entered under Rule 155.

ARON B. KATZ AND PHYLLIS A. KATZ, PETITIONERS v.
COMMISSIONER OF INTERNAL REVENUE,

RESPONDENT

Docket Nos. 460-96, 780-97,

181-98.

Filed January 12, 2001.

P-H, a calendar year taxpayer, owned interests in several calendar year partnerships. P-H filed a bankruptcy petition on July 5, 1990. P-H included the portions of his distributive shares attributable to the period prior to his bankruptcy filing on his separately filed 1990 income tax return. The remainder of those distributive shares were reported by P-H's bankruptcy estate. Held: The manner in which the distributive share of a partner in bankruptcy is allocated between the partner and the bankruptcy estate is not a "partnership item" under sec. 6231(a)(3), I.R.C. Accordingly, such allocation need not be resolved in a partnership-level proceeding pursuant to the uniform audit and litigation procedures of secs. 62216234, I.R.C. Held, further, where a partner's bankruptcy estate retains beneficial ownership of a partnership interest as of the close of the partnership taxable year, the partner's distributive share for the entire partnership taxable year is reportable by the bankruptcy estate. See secs. 706(a), 1398(e), I.R.C.

Laurence E. Nemirow, Josh O. Ungerman, and William R. Cousins III, for petitioners.

James E. Archie, for respondent.

OPINION

VASQUEZ, Judge: This matter is presently before the Court on petitioners' motion to dismiss for lack of jurisdiction. In the event petitioners' motion to dismiss is not granted, the parties have filed cross-motions for summary judgment 1 pursuant to Rule 121.2 As discussed below, we shall deny

1

1 The motions were originally filed as motions for partial summary judgment. Yet subsequent to the filing of these motions, the parties settled with respect to all other issues remaining in the case. Accordingly, we drop the "partial" modifier and treat the motions as requesting summary judgment in favor of the movant.

2 Unless otherwise indicated, all section references are to the Internal Revenue Code in effect Continued

petitioners' motion to dismiss and motion for summary judgment, and we shall grant summary judgment in favor of respondent.

Background

Petitioners resided in Boulder, Colorado, at the time their petition was filed in this case. The following summary of the relevant facts is based on the parties' stipulations and attached exhibits.

During 1990, petitioner Aron B. Katz (Mr. Katz) held limited partnership interests in a number of partnerships. Each of the partnerships used the calendar year for tax reporting purposes, as did Mr. Katz.

On July 5, 1990, Mr. Katz commenced a bankruptcy proceeding in the U.S. Bankruptcy Court for the Southern District of New York by filing a petition for relief under chapter 7 of the U.S. Bankruptcy Code. Mr. Katz did not make an election under section 1398(d)(2) to bifurcate his 1990 taxable year into two short taxable years on account of his bankruptcy filing. Accordingly, Mr. Katz' individual income tax return for 1990, on which he claimed the status of a married person filing separately, covered the entire calendar year.

On account of Mr. Katz' bankruptcy proceeding, some of the partnerships undertook an interim closing of the books with respect to Mr. Katz' partnership interest in determining his distributive share of partnership tax items for 1990. In doing so, each of these partnerships subdivided the distributive share determined in respect of Mr. Katz' interest for the entire 1990 partnership taxable year (the 1990 calendar year distributive share) into two categories: The first consisted of those items attributable to the period prior to July 5, 1990 (the prepetition items), and the second consisted of those items attributable to the remainder of the 1990 calendar year (the postpetition items). The prepetition items were specifically allocated to Mr. Katz in his individual capacity, while the postpetition items were allocated to Mr. Katz' bankruptcy estate.

for the years in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.

A number of partnerships, however, made no attempt to subdivide the 1990 calendar year distributive share between Mr. Katz and his bankruptcy estate. Rather, each of these partnerships issued a Schedule K-1, Partner's Share of Income, Credits, Deductions, etc., to Mr. Katz reflecting the entire 1990 calendar year distributive share. With respect to these partnerships, Mr. Katz undertook an interim closing of the books on their behalf, allocating the prepetition items to himself and the postpetition items to his bankruptcy estate. Mr. Katz explained each such allocation through a Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request (AAR), attached to his 1990 tax return.

The prepetition items from the 1990 calendar year distributive shares which were allocated to Mr. Katz in the manner described above resulted in losses totaling $19,122,838 (the prepetition partnership losses).3 This amount made up most of the $19,262,795 net operating loss (NOL) Mr. Katz reported for his 1990 taxable year.

By notice of deficiency, respondent disallowed the NOL carryovers petitioners deducted on their jointly filed income tax returns for tax years 1991 through 1994, to the extent that the carryovers were attributable to the prepetition partnership losses. Respondent contends that the prepetition partnership losses belonged to and were properly reportable by Mr. Katz' bankruptcy estate, as opposed to Mr. Katz individually. No notice of final partnership administrative adjustment (FPAA) under section 6226 has been issued to any of the partnerships with respect to taxable year 1990.

Discussion

Petitioners' first challenge to respondent's disallowance of the NOL carryovers is that respondent was without authority to make such a determination. Accordingly, petitioners move that the case be dismissed for lack of jurisdiction. In the event the matter is not resolved on jurisdictional grounds, petitioners move for summary judgment on the ground that the prepetition partnership losses were properly reported by

3 The bulk of the prepetition partnership losses was generated by a partnership entitled Century Centre Associates, Ltd. This partnership allocated $18,569,842 of overall loss to Mr. Katz with respect to the period prior to July 5, 1990, while allocating to Mr. Katz' bankruptcy estate $33,381,880 of overall income with respect to the remainder of 1990.

Mr. Katz in his individual capacity. Respondent has filed a cross-motion for summary judgment with respect to this issue. We begin with petitioners' jurisdictional argument.

A. Petitioners' Motion To Dismiss for Lack of Jurisdiction

Petitioners argue that respondent's notice of deficiency is invalid to the extent it disallows the NOL carryovers petitioners deducted for the tax years at issue. Petitioners contend that the NOL carryovers constitute "affected items" governed by the unified audit and litigation procedures and that respondent has failed to comply with those procedures by not first proceeding against the relevant partnerships.

1. TEFRA Procedures

The unified audit and litigation procedures were enacted as part of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), Pub. L. 97-248, sec. 401(a), 96 Stat. 648, and are commonly referred to as the TEFRA procedures.4 The TEFRA procedures provide a method for adjusting "partnership items" in a single, unified partnership proceeding, rather than in separate actions against each partner. See sec. 6221. In general, the Commissioner is precluded from assessing a deficiency attributable to a partnership item until after the completion of the partnership-level proceeding. See sec. 6225(a). The same prohibition extends to the assessment of a deficiency attributable to an "affected item", as the tax treatment of such an item is dependent on the treatment of a partnership item. E.g., Dubin v. Commissioner, 99 T.C. 325, 328 (1992); N.C.F. Energy Partners v. Commissioner, 89 T.C. 741, 743-744 (1987); Maxwell v. Commissioner, 87 T.C. 783, 792 (1986). Accordingly, a notice of deficiency issued prior to the completion of the partnership-level proceeding is invalid to the extent it relates to a partnership item or an affected item. See GAF Corp. v. Commissioner, 114 T.C. 519, 524-526 (2000).

No FPAA was issued by respondent and no partnershiplevel proceedings have been commenced regarding the prepetition partnership losses in the present case. Accordingly, if the NOL carryovers at issue constitute affected items

4 The TEFRA procedures, effective for partnership taxable years beginning after Sept. 3, 1982, have been amended since their enactment and now constitute secs. 6221 through 6234.