UNITED STATES TAX COURT



RODNEY J. BLONIEN AND NOREEN E. BLONIEN, Petitioners v.
      COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 2660-00.                     Filed June 12, 2002.


     R issued an “affected items” notice of deficiency
to P for 1992, attributable to P’s distributive share
of cancellation of debt income of an insolvent law
partnership. R claims that the period for assessment
of partnership items under sec. 6229, I.R.C., has not
expired by reason of the extension of the period of
limitations by the partnership’s tax matters partner.
P claims the separate period of limitations relating to
partnership items in sec. 6229, I.R.C., does not apply
to him because he never became a partner in the
partnership, and that the period of limitations for
assessing nonpartnership items under sec. 6501, I.R.C.,
has expired. R claims we lack jurisdiction to consider
P’s argument that he was not a partner, and that
assessment of the deficiency is therefore timely under
sec. 6229, I.R.C.
     Held: We have no jurisdiction to consider P’s
argument that he was not a partner. Whether P was a
partner is a partnership item that can be challenged
only at the partnership level. P has no standing to
challenge on due process grounds the partnership-level
                               - 2 -

     determination that he was a partner because (1) P
     claimed on prior returns that he was a partner, and (2)
     P received a Schedule K-1 from the partnership for the
     year in issue and failed to file with his return a Form
     8082, Notice of Inconsistent Treatment or
     Administrative Adjustment Request, notifying respondent
     of his position that he was not a partner. Therefore,
     the applicable period of limitations under sec. 6229,
     I.R.C., for R to assess the deficiency has not expired.
     Held, further, we have jurisdiction to consider
     partner-level adjustments in a Rule 155 computation.


     R. Todd Luoma, for petitioners.

     Kathryn K. Vetter, for respondent.



     BEGHE, Judge:   On December 17, 1999, respondent issued

petitioners an “affected items” notice of deficiency of $11,826

in their 1992 Federal income tax.   The deficiency is attributable

to inclusion in the income of petitioner Rodney J. Blonien (Mr.

Blonien) of his distributive share of cancellation of debt (COD)

income of Finley, Kumble, Wagner, Heine, Underberg, Manley,

Myerson & Casey (Finley Kumble), a law partnership that had

become insolvent.

     Petitioners allege assessment is barred by the 3-year period

of limitations provided in section 6501(a)1 because Mr. Blonien

was not a partner of Finley Kumble subject to the alternative

period of limitations provided by section 6229 for the assessment


     1
      Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the year at issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
                                - 3 -

of partnership and affected items.      Respondent argues that we

lack jurisdiction to question Finley Kumble’s decision to treat

Mr. Blonien as a partner, and that Mr. Blonien was a partner.

     We hold that we have no jurisdiction in this proceeding to

consider Mr. Blonien’s argument that he was not a partner in

Finley Kumble.   To the extent the determination would affect the

allocation of partnership items among the other partners, the

determination of who is a partner is a partnership item that must

be challenged at the partnership level.      Therefore, assessment of

the deficiency against petitioners for 1992 arising out of Mr.

Blonien’s share of Finley Kumble’s items is not barred by the

applicable statute of limitations.

     We have jurisdiction in this deficiency proceeding to

adjudicate the effect of Mr. Blonien’s share of partnership items

(determined at the partnership level) on petitioners’ tax

liability.   The deficiency will be determined in accordance with

Rule 155.

                         FINDINGS OF FACT

     The parties have stipulated some of the facts.      The

stipulation of facts and the attached exhibits are incorporated

herein by this reference.   Petitioners lived in Elk Grove,

California, when they filed their petition in this case.

     Mr. Blonien is an attorney who has been admitted to practice

law in California since 1972.
                               - 4 -

     Before the years in issue, Mr. Blonien worked as an attorney

for the State of California.   He began his legal career in 1972

as an attorney for the California attorney general’s office and

continued in that position until he was appointed legal affairs

secretary to then Governor Ronald Reagan.   After working for the

Governor, Mr. Blonien became executive director of the California

Peace Officer’s Association.   He then returned to the California

attorney general’s office as a senior assistant attorney general

and thereafter was appointed special assistant attorney general.

In 1982, he was appointed legislative secretary and policy

director to Governor George Deukmejian.   In December 1984, he

moved from the Governor’s office to be undersecretary of the

Youth and Adult Corrections Agency of California.

     In November 1986, then California Treasurer Jess Unruh

arranged for Mr. Blonien to meet former New York Governor Hugh L.

Carey, then a senior partner in Finley Kumble.   Governor Carey

introduced Mr. Blonien to other senior partners of Finley Kumble,

including Steven Kumble and Harvey Myerson.   After the meeting,

Governor Carey informed Mr. Blonien that Messrs. Kumble and

Myerson intended to recommend to Finley Kumble that Mr. Blonien

be offered the opportunity to join Finley Kumble as a partner.

      In December 1986, Mr. Blonien asked Governor Carey about

the status of a Finley Kumble offer.   Governor Carey informed Mr.

Blonien that the offer was “on”, and that Mr. Blonien should
                               - 5 -

start a modest branch office of Finley Kumble in Sacramento,

California.   Mr. Blonien continued to have conversations with

Governor Carey about opening a Finley Kumble branch office in

Sacramento.

     In March 1987, Mr. Blonien reached an oral agreement to join

Finley Kumble as a partner.   Under the terms of the agreement,

Mr. Blonien was to receive a draw of $8,750 per month and was to

make a capital contribution to Finley Kumble of $80,000.   Finley

Kumble agreed to arrange for Mr. Blonien to borrow the funds to

make the capital contribution from its lender, Manufacturers

Hanover Bank.2

     On April 1, 1987, Mr. Blonien left the California State

government to begin practicing law with Finley Kumble in

Sacramento.   Acting on behalf of Finley Kumble, Mr. Blonien

sublet office space from another law firm, obtained office

     2
      The terms of the offer are set forth in a letter to Mr.
Blonien dated Mar. 4, 1987, from Steven Kumble, Harvey Myerson,
Robert Washington, and Governor Carey. Mr. Blonien testified
that he did not receive this letter until after Sept. 2, 1987.
Mr. Blonien testified that Governor Carey orally informed him of
these same basic terms in March 1987, but that he did not receive
written confirmation of the terms until September 1987.
Respondent argues that Mr. Blonien’s testimony is self-serving,
and that it is incredible that Mr. Blonien would leave his
government job without written confirmation of Finley Kumble’s
offer. It does not matter in the case at hand whether the offer
and acceptance were oral or written, and we therefore need not
decide when Mr. Blonien first received written confirmation of
the terms of the partnership offer. Mr. Blonien testified that
he assumed, when he started working for Finley Kumble, that his
relationship with the firm would be as described in the letter
dated Mar. 4, 1987.
                               - 6 -

furniture and equipment from a friend who had closed a real

estate office, hired office employees, obtained a telephone

number, and opened the Sacramento office for Finley Kumble.    On

the day he opened the Finley Kumble Sacramento office, California

treasurer Jess Unruh called Mr. Blonien to inform him that Finley

Kumble would be appointed counsel for the issuer or underwriter

in several new California agency bond transactions.   Finley

Kumble began to pay the payroll for its Sacramento office by the

third week of April, reimbursed Mr. Blonien for office expenses

advanced by him, and paid him a draw of approximately $4,000

every 2 weeks.   See infra note 3.   A month or so after the

opening of the Sacramento office, Finley Kumble sent out a notice

that Mr. Blonien had joined the firm as a partner and that the

Sacramento office was open.   Mr. Blonien’s title was partner, and

he expected that he would be a partner of Finley Kumble in all

respects once the paperwork was finalized.

     During summer 1987, Mr. Blonien read an article in “The

American Lawyer” concerning Finley Kumble’s financial problems.

These problems arose from Finley Kumble’s practice of factoring

its accounts receivable and its failures, upon collecting the

accounts, to repay the factor’s advances.    A number of partners

of Finley Kumble left the firm around this time, and Mr. Blonien

questioned whether he should remain with the firm.
                               - 7 -

     On September 2, 1987, Finley Kumble sent Mr. Blonien a copy

of the partnership agreement to sign along with loan documents to

execute to borrow the funds necessary to make his capital

contribution.   Because of his concerns about Finley Kumble’s

financial viability, Mr. Blonien did not sign the partnership

agreement.   During October 1987, Finley Kumble pressured Mr.

Blonien to sign the partnership agreement and make his capital

contribution.   In November 1987, Mr. Blonien met with Governor

Carey, Steven Kumble, and Jim Normile to discuss his concerns

about Finley Kumble’s viability.   Mr. Blonien still did not feel

reassured about Finley Kumble’s viability, and he did not sign

the partnership agreement or the loan documents.

     In late November and early December, several of Mr.

Blonien’s bond clients informed him that they would be seeking

other counsel because Finley Kumble’s well-publicized financial

problems called into question the value of the legal opinions

Finley Kumble would be required to issue in connection with the

bond transactions that Mr. Blonien had originated.   Despite these

problems, which led to the loss of some clients and writedowns of

billable time, Finley Kumble did collect fees for its legal

services in bond transactions that Mr. Blonien had originated.

     On December 8, 1987, after Finley Kumble announced its

dissolution, Mr. Blonien sent a letter to Finley Kumble in which

he stated that he was withdrawing as a partner of the
                                - 8 -

partnership:   “It is with a great deal of reluctance that I, this

date, tender my resignation as a partner in the firm of Finley

Kumble”.   Mr. Blonien subsequently joined the law firm of Whitman

& Ransom, along with former Finley Kumble partners Governor Carey

and Jim Normile and other members of the public finance

department of Finley Kumble.

     Mr. Blonien received more than $64,000 in draws from Finley

Kumble in 1987.3    Petitioners did not report receiving wages from

Finley Kumble on their Form 1040, U.S. Individual Income Tax

Return, for 1987.    Instead, petitioners reported Mr. Blonien’s

distributive share of partnership income from Finley Kumble on

Schedule E, Supplemental Income and Loss, in the amount of only

$15,310.   Petitioners did not file with their 1987 return Form

8082, Notice of Inconsistent Treatment or Administrative

Adjustment Request, with respect to Finley Kumble, or otherwise


     3
      Mr. Blonien testified that he received draws of
approximately $8,000 per month. The formal offer letter dated
Mar. 4, 1987, which Mr. Blonien claims he did not receive until
months later, indicates draws of $8,750 per month beginning Apr.
1, 1987. Mr. Blonien testified that the offer letter set forth
the terms of his agreement with Finley Kumble. Yet he also
testified that he thought his compensation was only about $8,000
per month. The parties did not offer conclusive evidence of the
exact amount Mr. Blonien received from Finley Kumble in 1987.
Presumably, Mr. Blonien received these draws from April through
at least November 1987 (8 months). The terms of the offer letter
suggest that Mr. Blonien likely received at least $70,000 in
distributions from Finley Kumble during 1987. In any event, Mr.
Blonien received substantially more money from Finley Kumble in
1987 than petitioners reported as income on their Federal income
tax returns.
                                 - 9 -

notify the Internal Revenue Service that they were claiming that

Mr. Blonien was not a partner in Finley Kumble.

     On February 24, 1988, several of Finley Kumble’s creditor

banks filed an involuntary petition under chapter 7 of the

Bankruptcy Code against Finley Kumble.    On March 4, 1988, the

bankruptcy court granted relief to Finley Kumble under chapter 11

of the Bankruptcy Code.    In 1992, a substantial amount of Finley

Kumble’s debts was discharged in the bankruptcy proceeding.

     On Schedule E attached to their 1988 Federal income tax

return, petitioners reported a nonpassive partnership loss of

$106 from Finley Kumble and substantial partnership income from

the Whitman & Ransom law firm.    Mr. Blonien believes that

petitioners reported this loss on the basis of a Schedule K-1,

Partner’s Share of Income, Credits, Deductions, Etc., he received

from Finley Kumble.    Petitioners did not file Form 8082 with

respect to Finley Kumble with their 1988 return or otherwise

notify the Internal Revenue Service that they were claiming that

Mr. Blonien was not a partner in Finley Kumble.

     On May 23, 1991, Mr. Blonien entered into a settlement

agreement with Francis Musselman, the chapter 11 trustee for

Finley Kumble.   Under the settlement agreement, Mr. Blonien

agreed to pay $15,000 over a period of 10 years, together with

interest at the rate of 10 percent per year, to the Finley Kumble

bankruptcy estate.    The settlement agreement referred to and
                              - 10 -

defined Mr. Blonien as the “partner”.   Mr. Blonien entered into

the settlement agreement because the settlement amount was less

than the legal cost he would have incurred in defending against

the trustee’s claim.

     On September 21, 1993, Finley Kumble filed its 1992 Form

1065, U.S. Partnership Return of Income.   On this return, which

was signed on behalf of Finley Kumble by Mr. Musselman as

trustee, the firm reported that it had 280 partners, including

Mr. Blonien. On the face of the return at line 7, Other income

(loss), Finley Kumble referenced “SEE STATEMENT 1", which was a

Form 8275, Disclosure Statement, containing an Item 2

“CANCELLATION OF INDEBTEDNESS $55,777,452"; Statement 2 to the

return indicated that this amount had been included in “OTHER

INCOME INCLUDED IN SCHEDULE M-1, LINE 9:   INCOME FROM

CANCELLATION OF DEBT.”   The last paragraph of the attachment to

the Disclosure Statement states as follows:

          On December 9, 1991, the Bankruptcy Court entered
     an order confirming the Chapter 11 plan proposed by the
     Trustee, with certain amendments (“Plan”). This order
     became final and non-appealable in February, 1992 and
     the Plan became effective on March 19, 1992 (“Effective
     Date”). In the Closing Agreement being negotiated with
     the Internal Revenue Service (“IRS”), it is expected
     that the Trustee will stipulate the amount of
     cancellation of indebtedness income (“COD”) to be
     $55,777,452. This COD has been calculated using
     various estimates and methods as requested by the IRS.
     The COD has been determined using the assets of the
     Partnership at the beginning of 1992, the expected
     contributions of all the Finley partners, and the
     estimate of the allowed claims in their appropriate
                                - 11 -

     classification at the Effective Date. The COD has been
     allocated to the partners based upon a formula
     developed with the IRS. If no Closing Agreement is
     entered into, the Trustee may amend the return to
     reflect an alternative position with respect to the
     timing of recognition of COD income.

     Mr. Blonien received a Schedule K-1 from Finley Kumble for

1992, indicating that his distributive shares of Finley Kumble

items were as follows:

                                         Distributive
            Partnership Item                Share

       Ordinary income (loss)            ($1,252)
       Interest                              127
       Net long-term capital gain (loss)      (8)
       Sec. 1231 gain (loss)                 (10)
       Income from cancellation of debt   37,212

The Schedule K-1 indicated that Mr. Blonien had a 0.0170-percent

interest in Finley Kumble’s profits and losses, and a 0.0345-

percent interest in Finley Kumble’s capital.   The Schedule K-1

also indicated that Mr. Blonien had a yearend negative capital

account of $13,717.

     On October 15, 1993, pursuant to extensions, petitioners

filed their 1992 Federal income tax return, which respondent

received on October 20, 1993.

     Petitioners reported $2,000 of COD income from Finley Kumble

on line 22, page 1 of their 1992 return as follows:     “Other

Income.   COD INCOME FINLEY, KUMBLE ET AL 2,000”.   Other than this

$2,000 reported on the face of the return, petitioners did not

account therein for Mr. Blonien’s distributive share of items

from Finley Kumble or his negative capital account or include any
                               - 12 -

reference to Finley Kumble on Schedule E of the 1992 return.

Petitioners did not file Form 8082 with respect to Finley Kumble

with their 1992 return or otherwise notify the Internal Revenue

Service that they were claiming that Mr. Blonien was not a

partner in Finley Kumble.

     Petitioners’ 1992 return was prepared by their accountant,

Andrew Lundholm.   Mr. Blonien did not know why he reported $2,000

of COD income of Finley Kumble, rather than the amount shown on

the Schedule K-1 from Finley Kumble.

     Petitioners did report on Schedule E of their 1992 return

Mr. Blonien’s share of partnership income from Whitman & Ransom.

Petitioners did include with their 1992 return Form 8082 with

respect to Whitman & Ransom.   Petitioners indicated thereon that

the amount shown on “Line 5 Guaranteed Payments to Partner” and

“Line 15a Net Earnings (loss) from self-employment” of the

Schedule K-1 received from Whitman & Ransom exceeded the amount

being reported by them on Schedule E, with the following

explanation:   “Line 10 & 11 - Partnership reported items on an

accrual basis although it is a cash tax reporter Amount reported

on this return are [sic] amounts actually received.”

     Petitioners’ accountant, Mr. Lundholm, sent a letter to

respondent dated July 21, 1995, requesting respondent to abate

late-filing penalties assessed for 1990, 1991, and 1992.   In the

letter, Mr. Lundholm stated:
                                - 13 -

     The extensions were necessary as all the data needed to
     file a complete and accurate return was not available
     at the time of the original due dates. In particular a
     New York based law partnership, (Finley, Kumble and
     Wagner--XX-XXXXXXX) in which Mr. Blonien was a partner.
     This particular partnership filed for bankruptcy in
     1988 and has been in audit by the Internal Revenue
     Service for years. Mr. Blonien has been involved with
     the various lawsuits and audits from 1988 to the
     present, (last correspondence from the service
     regarding this partnership is dated December 22, 1994).
     This partnership alone made it impossible to file his
     returns without additional time allowed by the
     extensions. [Emphasis added.]

     On May 10, 1996, respondent appointed Marshall Manley to be

the tax matters partner (TMP) for Finley Kumble because he was

the Finley Kumble partner with the largest partnership share.     On

June 20, 1996, Marshall Manley, as TMP of Finley Kumble, signed a

Form 872-P, Consent to Extend the Time to Assess Tax Attributable

to Items of a Partnership, by which the period to assess the

Finley Kumble partners for partnership items for the calendar

year 1992 was extended to December 31, 1997.   On May 29, 1997,

Mr. Manley, as TMP of Finley Kumble, signed a second Form 872-P,

extending the assessment period to December 31, 1998.

Petitioners were aware that respondent was examining Finley

Kumble’s partnership returns.

     On August 10, 1998, respondent issued a notice of final

partnership administrative adjustment (FPAA) for Finley Kumble to

Marshall Manley, TMP, for the calendar year 1992.   No petition

was timely filed with respect to the FPAA.
                              - 14 -

     On December 17, 1999, respondent sent petitioners an

affected items notice of deficiency, determining a deficiency of

$11,826 for the year ended 1992; the basis for the deficiency was

Mr. Blonien’s distributive share of Finley Kumble’s COD income in

the amount of $36,3324 and a phaseout of itemized deductions

under section 68 of $1,817 resulting from the additional Finley

Kumble income.5   This amount of COD income is $880 less than Mr.

Blonien’s distributive share of Finley Kumble’s COD income shown

on the Schedule K-1 that Mr. Blonien received from Finley Kumble.

It appears that, in issuing the notice, respondent did not give

petitioners credit for the $2,000 of Finley Kumble COD income

reported on page 1 of their 1992 return.   It does not appear that

respondent made adjustments to petitioners’ tax liability for the

other items reported to Mr. Blonien on the Finley Kumble Schedule

K-1 and in the FPAA.



     4
      Presumably, respondent used the “affected items” procedure
to enable Mr. Blonien and other Finley Kumble partners to claim
that they need not recognize their respective shares of Finley
Kumble’s COD income, to the extent of their own insolvency.
Sec. 108(a)(1)(B), (d)(6); see Overstreet v. Commissioner, T.C.
Memo. 2001-13, affd. in part and dismissed in part 33 Fed. Appx.
349 (9th Cir. 2002). Petitioners did not claim in their petition
that they were insolvent.
     5
      In issuing the notice, respondent did not respond to the
invitation in sec. 6222(d) to determine an accuracy-related
penalty against petitioners under sec. 6662(a) for taking a
position on their individual return inconsistent with the
position taken by Finley Kumble on its partnership return without
filing Form 8082 or otherwise explaining the basis for the
inconsistency.
                               - 15 -

                              OPINION

We Lack Jurisdiction To Consider Petitioners’ Argument That Mr.
Blonien Was Not a Partner

     Petitioners argue that Mr. Blonien never became a partner in

Finley Kumble.   They therefore contend that the period of

limitations under section 6229 for respondent to assess a

deficiency relating to partnership items does not apply to them.

Petitioners further contend that the period of limitations for

assessing a deficiency relating to nonpartnership items (section

6501) has expired.

     Respondent argues that we lack jurisdiction in this

proceeding to consider petitioners’ argument that Mr. Blonien was

not a partner in Finley Kumble.   We agree with respondent.

     “When a jurisdictional issue is raised, as well as a statute

of limitations issue, we must first decide whether we have

jurisdiction in the case before considering the statute of

limitations defense.”    Saso v. Commissioner, 

, 734-735

(1989) (citing King v. Commissioner, 

, 1050 (1987),

affd. on other grounds 

(9th Cir. 1988)).

     Our jurisdiction cannot depend on the merits of petitioners’

allegations.   Jurisdiction represents the power to hear a claim

and decide its merits.   As the Supreme Court recently stated:

“Without jurisdiction the court cannot proceed at all in any

cause.   Jurisdiction is power to declare the law, and when it

ceases to exist, the only function remaining to the court is that
                              - 16 -

of announcing the fact and dismissing the cause.”     Steel Co. v.

Citizens for a Better Envt., 

, 94 (1998).     We cannot

avoid the jurisdictional issue by assuming hypothetical

jurisdiction and disposing of the case on the merits.     

of his jurisdictional argument, respondent points

out that section 6221 requires “partnership items” to be

determined at the partnership level.    Under section 6231(a)(3),

“partnership items” are those items that, by regulation, are more

appropriately determined at the partnership level than at the

partner level.   The regulations contain a nonexclusive list of

items more appropriately determined at the partnership level.

Sec. 301.6231(a)(3)-1(a)(1), Proced. & Admin. Regs.    The list

includes the amount of, and each partner’s distributive share of,

partnership items of income, gain, loss, deduction, or credit,

contributions, distributions, or transactions

subject to section 707(a) that are necessary to determine the

amount, character, or percentage interest of a partner in the

partnership, sec. 301.6231(a)(3)-1(a)(4), Proced. & Admin. Regs.

     In order to determine each partner’s distributive share of

partnership items, it is necessary to know who are the partners

and what share of partnership items each partner is entitled to

and required to take into account.     Therefore, to the extent that

the taxpayer’s claim that he was not a partner would affect the

distributive shares of the other partners, the taxpayer’s claim
                              - 17 -

is a partnership item.6   We have no jurisdiction to consider

partnership items in a partner-level deficiency proceeding.     GAF

Corp. v. Commissioner, 

(2000); Maxwell v.

Commissioner, 

(1986).   Therefore, we are bound by the

determination made at the partnership level that Mr. Blonien was

a partner in Finley Kumble.

Petitioners Have Not Been Deprived of Due Process

     Petitioners argue that treating their allegation that Mr.

Blonien was not a partner as a “partnership item”, over which we

have no jurisdiction in this partner-level deficiency proceeding,


     6
      We recognize that the determination of who is a partner can
be a partner-level item where resolution of the issue would not
affect the allocation of partnership items to the other partners.
In Katz v. Commissioner, 

(2001), we held that
allocation of a partnership distributive share between a partner
and the partner’s bankruptcy estate was properly a partner-level
item because the outcome of the dispute did not affect the
allocation of partnership items among the other partners.
Similarly, in Hang v. Commissioner, 

(1990), we held
that the determination whether a father was equitable owner of S
corporation shares held in the name of his sons is properly made
at the individual shareholder level rather than at the corporate
level in a TEFRA proceeding because the determination would not
affect the distributive shares of the other shareholders.

     In the case at hand, if petitioners were successful in
arguing that Mr. Blonien was not a partner in Finley Kumble, then
the share of Finley Kumble’s COD income wrongly allocated to Mr.
Blonien would have to be reallocated among the other partners.
Because the Finley Kumble partnership-level proceeding is
completed, there may be no way to make the reallocations.
Therefore, unlike the situation in Hang and Katz where resolution
of the dispute would not affect the original partnership
allocations, resolution of the dispute could affect the
partnership allocations to the other partners. Therefore, the
determination of whether Mr. Blonien was a partner in Finley
Kumble is more appropriately determined at the partnership level.
                              - 18 -

would deprive Mr. Blonien of due process and violate their

constitutional rights.   Mr. Blonien observes that he had an

inherent conflict of interest with the Finley Kumble trustee and

Mr. Manley, the TMP, on this question.    The trustee had an

interest in enlarging the group of persons against whom claims

for contribution to satisfy the claims of creditors could be

pursued.   Mr. Manley, as the partner with the largest percentage

interest in the firm, had an interest in enlarging the group of

persons to whom the COD income would be allocated in order to

reduce his own share of the COD income.    Yet, as Mr. Blonien

observes, he had no right to participate in the partnership-level

proceeding to dispute his partner status.7

     Under the partnership unified audit and litigation

procedures enacted by the Tax Equity and Fiscal Responsibility

Act of 1982 (TEFRA), Pub. L. 97-248, sec. 402(a), 96 Stat. 648,

codified at sections 6221 through 6233, if a partnership has more

than 100 partners and a putative partner has less than a 1-

percent interest in the profits of the partnership, the

Commissioner generally need not give notice of a partnership

audit or proceeding to the putative partner, and the putative

partner has no standing to challenge the FPAA.    Secs. 6223(b),


     7
      If a readjustment petition had been filed in the Tax Court
by the TMP, a notice partner, or a 5-percent group, see infra
note 8, there might have been an interesting question whether Mr.
Blonien should be entitled under sec. 6226(c) to participate in
the proceeding to present his claim that he was not a partner.
                             - 19 -

6226(b); Energy Res., Ltd. v. Commissioner, 

(1988).8

These TEFRA provisions normally satisfy the requirements of due

process because the tax matters partner, who receives notice and

has the right to petition the Tax Court to reconsider the FPAA,

acts as the agent for the other partners.   Kaplan v. United

States, 

, 475 (7th Cir. 1998); Walthall v. United

States, 

, 1295 (9th Cir. 1997).    However,

petitioners contend that this agency rationale does not apply to

persons who were not partners in the partnership and did not

otherwise agree to be bound by partnership-level determinations.

Nor, petitioners contend, citing Transpac Drilling Venture 1982-

12 v. Commissioner, 

, 225 (2d Cir. 1998), revg. and

remanding T.C. Memo. 1994-26, does it apply to situations in

which the TMP has an inherent conflict of interest with the

putative partner on the question at issue, inasmuch as the agency

rationale is based on the notion that partners owe fiduciary

duties (including the duty of loyalty) to each other.      See

Meinhard v. Salmon, 

(N.Y. 1928).

     Whatever the merits of petitioners’ due process challenge,

there are two reasons they have no standing to raise it in this



     8
      It does not appear that partners with less than 1-percent
interests in Finley Kumble banded together to constitute
themselves a 5-percent group entitled, under sec. 6223(b)(2), to
notice of and participation in the administrative proceeding at
the partnership level and, under sec. 6226(b)(1), to file a
petition to the Tax Court in response to the FPAA.
                               - 20 -

proceeding.   First, petitioners are estopped by the duty of

consistency from claiming that Mr. Blonien was not a partner in

Finley Kumble for Federal income tax purposes.     Because of Finley

Kumble’s poor financial performance, petitioners reported as

income on their 1987 Federal income tax return far less than the

amount of money Mr. Blonien actually received from Finley Kumble.

Mr. Blonien received more than $64,000 in draws from Finley

Kumble in 1987.   See supra note 3.     Petitioners reported Mr.

Blonien’s distributive share of Finley Kumble’s partnership

income on Schedule E as only $15,310.     In addition, petitioners

reported and claimed a partnership loss from Finley Kumble of

$106 for the year 1988, a year for which he also reported

substantial partnership income from Whitman & Ransom.

     After receiving tax benefits by taking the position on their

Federal income tax returns that Mr. Blonien was a partner in

Finley Kumble in prior years, petitioners attempt to avoid

recognizing Mr. Blonien’s share of Finley Kumble’s COD income by

contending for 1992 that Mr. Blonien was merely an employee of

Finley Kumble.    Petitioners want the benefits of Mr. Blonien’s

being a partner in earlier years without subjecting themselves to

the burdens of his being a partner in the later year at issue.

As Justice Brandeis stated in his seminal concurring opinion in

Ashwander v. TVA, 

, 348 (1936):     “The Court will not

pass upon the constitutionality of a statute at the instance of
                             - 21 -

one who has availed himself of its benefits.”   Accord Arnett v.

Kennedy, 

, 153 (1974) (“It is an elementary rule of

constitutional law that one may not ‘retain the benefits of an

Act while attacking the constitutionality of one of its important

conditions’.” (quoting United States v. San Francisco, 

, 29 (1940))).

     The duty of consistency prevents petitioners from claiming

on their income tax returns that Mr. Blonien was a partner and

then asserting, following the TEFRA partnership proceeding, that

the statute of limitations bars assessment of the deficiency

because Mr. Blonien never became a partner after all.   As we

explained in Hollen v. Commissioner, T.C. Memo. 2000-99, affd. 25

Fed. Appx. 484 (8th Cir. 2002):

          The “duty of consistency”, sometimes referred to
     as quasi-estoppel, is an equitable doctrine that
     Federal courts historically have applied in appropriate
     cases to prevent unfair tax gamesmanship. The duty of
     consistency doctrine “is based on the theory that the
     taxpayer owes the Commissioner the duty to be
     consistent in the tax treatment of items and will not
     be permitted to benefit from the taxpayer’s own prior
     error or omission.” It prevents a taxpayer from taking
     one position on one tax return and a contrary position
     on a subsequent return after the limitations period has
     run for the earlier year. If the duty of consistency
     applies, a taxpayer who is gaining Federal tax benefits
     on the basis of a representation is estopped from
     taking a contrary return position in order to avoid
     taxes. [Citations omitted.]

If Mr. Blonien was not a partner in Finley Kumble, then

petitioners misrepresented the facts to respondent in their

earlier Federal income tax returns.   Respondent relied on the
                               - 22 -

misrepresentation in pursuing the partnership-level proceeding

and forgoing an individual proceeding against Mr. Blonien within

the period of limitations on assessment under section 6501(a).

Petitioners first notified respondent of their position that Mr.

Blonien was not a partner after the period of limitations had

expired for the assessment of a deficiency on the full amount of

wage income that would have been taxable to petitioners if Mr.

Blonien had been an employee of Finley Kumble rather than a

partner.    These are the elements for equitable estoppel under the

duty of consistency.9   Under the duty of consistency, petitioners

are bound by the facts asserted in their returns--that Mr.

Blonien was a partner in Finley Kumble for Federal income tax

purposes.

     Second, petitioners have no standing to raise a due process

challenge because they received a partnership Schedule K-1 from

Finley Kumble for 1992 and failed to file a Form 8082 or

otherwise notify respondent that they were taking a position



     9
      We have previously adopted the elements for the duty of
consistency from the decision in Beltzer v. United States, 

, 212 (8th Cir. 1974): “(1) the taxpayer has made a
representation or reported an item for tax purposes in one year,
(2) the Commissioner has acquiesced in or relied on that fact for
that year, and (3) the taxpayer desires to change the
representation, previously made, in a later year after the
statute of limitations on assessments bars adjustments for the
initial tax year.” See, e.g., Estate of Letts v. Commissioner,

, 297 (1997), affd. without published opinion 

(11th Cir. 2000); Hollen v. Commissioner, T.C. Memo.
2000-99, affd. 25 Fed. Appx. 484 (8th Cir. 2002).
                              - 23 -

(that Mr. Blonien was not a partner) that was inconsistent with

the position taken by the partnership on the Schedule K-1 (that

Mr. Blonien was a partner).

     The TEFRA provisions incorporate the duty of consistency,

requiring partners on their individual returns to follow the

return filed by the partnership.   Section 6222(a) provides:

“A partner shall, on the partner’s return, treat a partnership

item in a manner which is consistent with the treatment of such

partnership item on the partnership return.”   If a partner

believes that the partnership’s treatment of an item is

erroneous, the partner may elect out of the duty of consistency

by treating the item inconsistently with the partnership’s

treatment and filing “with the Secretary a statement identifying

the inconsistency.”   Sec. 6222(b)(1)(B).   Section 301.6222(b)-1T,

Temporary Proced. & Admin. Regs., 52 Fed. Reg. 6782 (Mar. 5,

1987), provides that “the statement identifying an inconsistency

described in section 6222(b)(1)(B) shall be filed by filing the

form prescribed for that purpose in accordance with the

instructions accompanying that form.”   The instructions to Form

8082 at all relevant times required the filing of Form 8082 if

“you believe an item was not properly reported on the Schedule K-

1 * * * you received from the partnership”.

     Petitioners were aware of the requirement to file Form 8082

in 1992; they filed Form 8082 with their 1992 return to take a
                             - 24 -

position with respect to Mr. Blonien’s share of items from

Whitman & Ransom that was inconsistent with Whitman & Ransom’s

return.

     If a partner takes a position on his return inconsistent

with the partnership’s position on its return and properly files

a Form 8082 calling attention to the inconsistency, the

Commissioner has the option of (1) converting all partnership

items arising from that partnership into nonpartnership items and

resolving them at the partner level by so notifying the partner

under section 6231(b)(1)(A), or (2) determining the items at the

partnership level while allowing the inconsistent treatment

pending the conclusion of the partnership-level proceedings.

Sec. 301.6222(b)-2T(a), Temporary Proced. & Admin. Regs., 52 Fed.

Reg. 6782 (Mar. 5, 1987).

     A partner who receives a Schedule K-1 and fails to notify

the Commissioner of inconsistent treatment by filing a Form 8082

is bound by the partnership’s position on its return.   The

Commissioner may make a computational adjustment (without

following the deficiency procedures) to make the partner’s return

consistent with the partnership’s return.   Sec. 6222(c); sec.

301.6222(b)-2T(a), Temporary Proced. & Admin. 

.

     On no return that is part of the record in this case did

petitioners notify respondent that Mr. Blonien was not a partner.

Petitioners led respondent to believe that Mr. Blonien was a
                              - 25 -

partner in Finley Kumble, and that the appropriate way to collect

additional amounts that might be owed by the Finley Kumble

partners was to determine the partnership items in a partnership-

level proceeding.   See sec. 6221 (“the tax treatment of any

partnership item * * * shall be determined at the partnership

level” (Emphasis added.)).   Had petitioners properly notified

respondent at the time they filed their 1992 return of their

position that Mr. Blonien was not a partner in Finley Kumble,

respondent could have converted the issue to a partner-level item

under section 6231(b)(1)(A) or could have addressed the issue, on

notice to petitioners, in a partnership-level proceeding under

section 301.6222(b)-2T(a), Temporary Proced. & Admin. 

, all within the period of limitations.   By failing to file

a Form 8082 after receiving a Schedule K-1 from Finley Kumble,

petitioners accepted the position stated on the Schedule K-1 Mr.

Blonien received (that Mr. Blonien was a partner in Finley

Kumble), deprived respondent of an opportunity to address the

issue before the expiration of the period of limitations, and

thereby waived the right to take an inconsistent position on

their return.

     It was petitioners’ conduct in claiming on prior returns

that Mr. Blonien was a partner, and in failing to notify

respondent timely of their position that Mr. Blonien was not a

partner, that deprived Mr. Blonien of the opportunity to have the
                                - 26 -

issue disposed of in a way that would have allowed him to

participate in the determination.    Therefore, petitioners have no

standing to assert that they have been deprived of due process on

the grounds they did not have a prior opportunity to dispute Mr.

Blonien’s partnership status.

We Also Lack Jurisdiction To Consider Petitioners’ Argument That
the Issuance of the FPAA Was Not Timely

     In their petition to this Court, petitioners also challenged

the timeliness of the FPAA, arguing that the TMP’s extensions of

the period of limitations were invalid.   After petitioners filed

their petition, we issued our decision in Overstreet v.

Commissioner, T.C. Memo. 2001-13, affd. in part and dismissed in

part 33 Fed. Appx. 349 (9th Cir. 2002), in which we held that a

Finley Kumble partner did not have standing in a partner-level

proceeding to challenge the timeliness of the FPAA.   We held that

expiration of the period of limitations for issuance of the FPAA

is an affirmative defense that must be raised in a partnership-

level proceeding.

     At trial, petitioners and respondent stipulated to be bound

by the final decision in the Overstreet case.    Our decision in

Overstreet is now final, as a result of dismissal of the

taxpayer’s untimely appeal by the Court of Appeals for the Ninth

Circuit.   See 33 Fed. Appx. 349 (9th Cir. 2002).   On the basis of

the parties’ stipulation in the case at hand, petitioners cannot

challenge in this proceeding the validity and timeliness of the
                                - 27 -

Finley Kumble FPAA issued on August 10, 1998, or the extensions

of the period of limitations granted by Mr. Manley as TMP of

Finley Kumble.

We Have Jurisdiction To Determine How Mr. Blonien’s Share of
Finley Kumble’s Partnership Items Will Affect Petitioners’ Income
Tax Liability

     While we lack jurisdiction in this proceeding to consider

petitioners’ argument that Mr. Blonien was not a partner or to

review the allocation to Mr. Blonien of shares of partnership

items, we have jurisdiction to consider whether assessment of a

deficiency against petitioners is barred by the statute of

limitations, and whether respondent correctly determined

petitioners’ tax liability on the basis of the allocation made to

Mr. Blonien at the partnership level.

     Under TEFRA, after the allocation to the partners of

partnership items is determined at the partnership level, the

partners’ individual tax liabilities must be determined.    This is

done by way of “computational adjustments” and “affected items”,

two terms of art under TEFRA.    According to section 6231(a)(5)

and (6):

     The term “affected item” means any item to the extent
     such item is affected by a partnership item.

     The term “computational adjustment” means the change in
     the tax liability of a partner which properly reflects
     the treatment under this subchapter of a partnership
     item. * * *

In GAF Corp. v. Commissioner, 

, we stated:
                             - 28 -

          If a computational adjustment results in a
     deficiency in a partner's tax, the partner is accorded
     the right to challenge the adjustment pursuant to the
     deficiency procedures provided for in subtitle F,
     chapter 63, subchapter B of the Internal Revenue Code
     only if and to the extent the change in the partner's
     tax liability cannot be made without making one or more
     partner-level determinations. See sec. 6230(a)(1);
     sec. 301.6231(a)(6)-1T, Temporary Proced. & Admin.
     Regs., 52 Fed. Reg. 6790 (Mar. 5, 1987).

Therefore, we have jurisdiction in this proceeding to determine

the effect of the Finley Kumble partnership-level allocations on

petitioners’ tax liability to the extent the change in

petitioners’ tax liability resulting from the partnership-level

allocations requires partner-level determinations.

     Determining whether the assessment of the deficiency is

timely under the applicable statute of limitations requires a

partner-level determination of the timeliness of respondent’s

assessment with respect to each partner in the partnership.

Similarly, determining whether respondent gave petitioners credit

for the income recognized on their return in computing their

deficiency and determining the effect of the additional Finley

Kumble income on the phaseout of itemized deductions under

section 68(a)10 may require partner-level determinations.    We


     10
      Because the phaseout of itemized deductions under sec.
68(a) is computational and does not require any special partner-
level factual determinations, it appears that respondent could
have assessed the affected item adjustment as computational
without following the deficiency procedures of ch. 63, subch. B
of the Internal Revenue Code. See sec. 301.6231(a)(6)-1T(a),
Temporary Proced. & Admin. Regs., 52 Fed. Reg. 6790 (Mar. 5,
                                                   (continued...)
                              - 29 -

have jurisdiction in this proceeding to review these partner-

level determinations.   Before considering the merits of

petitioners’ claims, we consider petitioners’ evidentiary

objections.

Petitioners’ Evidentiary Objections

     Petitioners object to the admissibility of Exhibit 3-J

(Finley Kumble’s partnership return for 1992) and Exhibit 4-J

(Finley Kumble Schedule K-1 for Mr. Blonien for 1992) on the

ground that respondent failed to authenticate the documents under

rule 901 of the Federal Rules of Evidence and on the ground that

the documents are inadmissible hearsay under rule 802 of the

Federal Rules of Evidence.

     Respondent submitted a certification that the partnership

return is an authentic copy of the document filed with respondent

by Finley Kumble.   The copy of the document is incomplete because

it does not include the Schedules K-1 for all 280 partners.

Petitioners argue that the entire document is inadmissible

because the copy is incomplete.




     10
      (...continued)
1987). On the other hand, in certain circumstances, the
computational adjustment for passed-through discharge of
indebtedness income could require a partner-level solvency
determination. See sec. 108(a)(1)(B), (d)(6). In the case at
hand, respondent followed the deficiency procedures of ch. 63,
subch. B, of the Internal Revenue Code in connection with both
the affected item and the computational adjustment.
                              - 30 -

     Parties do not need to introduce complete versions of

documents.   Under rule 106 of the Federal Rules of Evidence, the

adverse party “may require the introduction at that time of any

other part * * * which ought in fairness to be considered

contemporaneously with it.”   Petitioners did not require the

introduction of the missing 279 Schedules K-1 or show that the

missing Schedules K-1 ought in fairness be considered with the

remainder of the partnership return.

     Petitioners argue that the Schedule K-1 for Mr. Blonien

should not be admitted because respondent did not include “the

partner letter originally attached to the Schedule K-1”.

Respondent has confirmed that the Schedule K-1 filed with the

return did not include a partner letter.   Petitioners have failed

to establish that the partner letter ought in fairness to be

considered with the Schedule K-1; petitioners’ authentication

objections are denied.

     Petitioners also argue that these exhibits should not be

admitted because they are hearsay--offered to prove that Mr.

Blonien was a partner in Finley Kumble.    Respondent responds that

these documents are not offered to show that Mr. Blonien was a

partner in Finley Kumble.   The documents are offered to show that

Finley Kumble purported to be a partnership that would be subject

to the TEFRA proceedings and to show Finley Kumble’s state of

mind--that Finley Kumble treated Mr. Blonien as a partner.     The
                                - 31 -

documents are not offered to establish and do not establish that

Mr. Blonien was a partner in Finley Kumble.    The documents are

admitted for the purposes offered.

     Exhibits 5-J through 9-J consist of documents relevant to

establishing the issuance and timeliness of the FPAA issued to

Finley Kumble.    At trial, the parties stipulated to be bound by

the final decision in Overstreet v. Commissioner, T.C. Memo.

2001-13, in which this Court determined that the expiration of

the period of limitations for issuance of the FPAA issued to

Finley Kumble is an affirmative defense that must be raised in a

partnership-level proceeding.    Because the taxpayers in

Overstreet did not timely file an appeal from the Tax Court’s

decision, the Tax Court’s decision is now final and binding on

the parties in the case at hand under the terms of their

stipulation.     The parties agree that Exhibits 5-J through 9-J are

relevant only if petitioners can challenge the timeliness of the

FPAA in this proceeding.    On the basis of the parties’

stipulation to be bound by the final decision in Overstreet, we

hold that petitioners cannot challenge the timeliness of the FPAA

in this proceeding.    Therefore, Exhibits 5-J through 9-J are not

relevant.

     Petitioners argued in their opening brief that Exhibit 10-J,

a computational adjustment report, is irrelevant.    Respondent

pointed out that the exhibit may be necessary to compute the Rule
                              - 32 -

155 calculation under certain circumstances.   Petitioners in

their reply brief did not dispute respondent’s contention.

Therefore, Exhibit 10-J has been admitted into evidence for that

purpose.

     Exhibits 16-J and 19-J are documents reflecting the

settlement agreement between Mr. Blonien and the trustee of

Finley Kumble’s bankruptcy estate regarding Mr. Blonien’s

agreement to make payments as part of Finley Kumble’s

reorganization plan.   The settlement document refers to Mr.

Blonien as a “partner”.

     Petitioners argue that the documents are not admissible

under rule 408 of the Federal Rules of Evidence because the

statements were made in settlement of a dispute.   We do not agree

with petitioners.   Rule 408 only bars the admissibility of

evidence to “prove liability for * * * the claim or its amount.”

Mr. Blonien’s settlement is not offered in this proceeding to

prove liability for or the amount of the bankruptcy trustee’s

claim against Mr. Blonien.   See Bituminous Constr., Inc. v.

Rucker Enters., Inc., 

(4th Cir. 1987) (letters

containing settlement offers were properly admitted to show the

defendant’s understanding of its obligations under a joint-check

agreement).   The settlement agreement is being offered for the

purpose of impeaching Mr. Blonien’s credibility and establishing
                               - 33 -

that he agreed to be treated as a partner of Finley Kumble, at

least for certain purposes.

     However, because we lack jurisdiction to consider

petitioners’ contention that Mr. Blonien was not a partner in

Finley Kumble, the document is not relevant to the resolution of

any issue in dispute in this case.

     Finally, petitioners argue that Exhibit 17-J, a letter from

petitioners’ accountant to respondent, should not be admitted.

In the letter, petitioners’ accountant requested an abatement of

late-filing penalties.   In support of the request, petitioners’

accountant stated that abatement is appropriate because Mr.

Blonien was a partner in Finley Kumble, and Finley Kumble had not

provided information to petitioners in time to enable them to

timely file their Federal income tax returns.     Petitioners argue

that these statements were not excepted from hearsay by rule

801(d)(2)(C) of the Federal Rules of Evidence (statements by

authorized agents of a party) because respondent failed to show

that the accountant was authorized by petitioners to make the

statements.

     We need not consider these issues because the letter is

irrelevant to any issue in dispute in this case.     We have no

jurisdiction to consider petitioners’ argument that Mr. Blonien

was not a partner in Finley Kumble.     Therefore the letter will

not be admitted in evidence.
                               - 34 -

Period of Limitations on Assessment of Deficiency

     Petitioners contend that the 3-year period of limitations

set forth in section 6501 bars respondent from assessing the

deficiency in the case at hand.   Section 6501(a) provides

“Except as otherwise provided in this section, the amount of any

tax imposed by this title shall be assessed within 3 years after

the return was filed (whether or not such return was filed on or

after the date prescribed).”   Except in certain specified

circumstances not relevant to the case at hand, the Commissioner

must, before assessing a deficiency, mail the taxpayer a notice

of deficiency in accordance with section 6212.   Sec. 6213(a).

Section 6503(a)(1) provides:

     The running of the period of limitations provided in
     section 6501 * * * on the making of assessments
     * * * in respect of any deficiency * * * shall * * * be
     suspended for the period during which the Secretary is
     prohibited from making the assessment * * * (and in any
     event, if a proceeding in respect of the deficiency is
     placed on the docket of the Tax Court, until the
     decision of the Tax Court becomes final), and for 60
     days thereafter.

The Secretary is prohibited from assessing the deficiency during

the 90-day period following mailing of a notice of deficiency

prepared under section 6212, and, if a petition is filed with the

Tax Court, until the decision of the Tax Court has become final.

Sec. 6213(a).   Therefore, unless another provision extends the

period for assessment contained in section 6501(a), the

Commissioner must mail the notice of deficiency to the taxpayer
                              - 35 -

within 3 years following the filing of the taxpayer’s income tax

return in order to be able to assess the deficiency timely.

     In the case at hand, respondent did not mail the notice of

deficiency within 3 years following the filing of petitioners’

1992 Federal income tax return.   Petitioners filed their 1992

Federal income tax return on October 15, 1993, and the notice of

deficiency was not mailed until December 17, 1999, more than 6

years later.   Therefore, unless the period for assessment is

otherwise extended or subject to a different period of

limitations, respondent would be barred by section 6501(a) from

assessing the deficiency.

     Respondent argues that the period for assessment of the

deficiency is subject to the alternative period of limitations

contained in section 6229, which is part of the unified audit and

litigation procedures for partnerships enacted by TEFRA.

     In Rhone-Poulenc Surfactants & Specialties, L.P. v.

Commissioner, 

, 539-540 (2000), we explained the

history and purpose of the uniform partnership procedures enacted

by TEFRA:

     For income tax purposes, partnerships are not taxable
     entities. * * * Any income tax attributable to
     partnership items is assessed at the partner level.
     Thus, any statute of limitations provisions that limit
     the time period within which assessment can be made are
     restrictions on the assessment of a partner’s tax.

          Before TEFRA, adjustments with respect to
     partnership items were made to each partner’s income
     tax return at the time (and if) that return was
                              - 36 -

     examined. * * * The tax-writing committees explained
     the TEFRA partnership provisions as follows: “[T]he
     tax treatment of items of partnership income, loss,
     deductions, and credits will be determined at the
     partnership level in a unified partnership proceeding
     rather than in separate proceedings with the partners.”

In Greenberg Bros. Pship. #4 v. Commissioner, 

, 201

(1998), we explained that “The principal purpose behind TEFRA is

to provide consistency and reduce duplication in the treatment of

‘partnership items’ by requiring that they be determined in a

unified proceeding at the partnership level.”

     In order to achieve the goal of having partnership items

(which ultimately affect each partner’s tax liability) determined

in a single proceeding at the partnership level, Congress enacted

section 6229, which extends the period of limitations applicable

to assessment of deficiencies against the individual partners

relating to the adjustment of partnership items:

          SEC. 6229(a). General Rule.--Except as otherwise
     provided in this section, the period for assessing any
     tax * * * which is attributable to any partnership item
     (or affected item) for a partnership taxable year shall
     not expire before the date which is 3 years after the
     later of–-

               (1) the date on which the partnership return
          for such taxable year was filed, or

               (2) the last day for filing such return
          for such year (determined without regard to
          extensions.

The limitations period can be extended for a particular partner

by agreement with that partner, or for all partners by the tax

matters partner.   Sec. 6229(b)(1).    The period is suspended
                              - 37 -

following the mailing to the tax matters partner of an FPAA

during the period under section 6226 for partners to challenge

the adjustment (150 days), and for 1 year thereafter.   Sec.

6229(d).   Thus, section 6229(d) extends “the time for respondent

to issue the notice of deficiency until 1 year and 150 days after

the issuance of the FPAA.”   Overstreet v. Commissioner, T.C.

Memo. 2001-13.

     The “affected items” notice of deficiency was mailed to

petitioners on December 17, 1999--within 1 year and 150 days

after the issuance of the FPAA on August 10, 1998.   Therefore, if

section 6229(d) applies to the items set forth in the notice of

deficiency mailed to petitioners, an assessment thereon would not

be barred by the statute of limitations.

     Section 6229(d) applies to the case at hand because Mr.

Blonien was determined to be a partner in Finley Kumble at the

partnership level.   We have no jurisdiction in this partner-level

proceeding to consider petitioners’ argument that the

partnership-level determination was wrong.   We are bound by the

determination made at the partnership level that Mr. Blonien was

a partner in Finley Kumble for Federal income tax purposes.

Therefore, respondent is not barred from assessing petitioners a

deficiency arising from Mr. Blonien’s share of Finley Kumble’s

items.
                              - 38 -

Rule 155 Computation

     Respondent stated on brief:    “If respondent prevails, this

case may require a Rule 155 computation.”    We agree that a Rule

155 computation is appropriate.    Respondent did not allow

petitioners credit for the $2,000 of Finley Kumble COD income

that they reported on their 1992 return.    Respondent also

indicated on brief that Exhibit 10-J may have a bearing on the

appropriate adjustments if a Rule 155 computation is required;

other items and amounts determined at the partnership level to be

allocated to Mr. Blonien are not clearly set forth in the FPAA

and the deficiency notice.   The parties should address and

resolve these issues in the Rule 155 computation.

     To reflect our holdings herein,



                                           Decision will be entered

                                     under Rule 155.