as petitioners contend, we must grant the motion to dismiss on the basis that the notice of deficiency is invalid as it relates to those items. With this procedural framework in mind, we turn to the issue of whether the NOL carryovers may be properly characterized as affected items under the TEFRA procedures.

2. Definition of Affected Item and Partnership Item

Section 6231(a)(5) defines an "affected item" as any item to the extent such item is affected by a partnership item. See also N.C.F. Energy Partners v. Commissioner, supra at 743– 745; Maxwell v. Commissioner, supra at 792-793; sec. 301.6231(a)(5)—1T, Temporary Proced. & Admin. Regs., 52 Fed. Reg. 6790 (Mar. 5, 1987). Section 6231(a)(3) defines the term "partnership item" as any item required to be taken into account for the partnership's taxable year, to the extent the regulations establish that such item is more appropriately determined at the partnership level than at the partner level. The regulations include in the definition of a partnership item each partner's share of items of income, gain, loss, deduction, or credit of the partnership. See sec. 301.6231(a)(3)-1(a)(1)(i), Proced. & Admin. Regs.

3. Bankruptcy Regulation

The Secretary is authorized to identify by regulations certain instances in which the treatment of an item as a partnership item under the TEFRA procedures will interfere with the effective and efficient enforcement of the Internal Revenue Code. See sec. 6231(c)(2). The Secretary has identified the bankruptcy of a partner as one such instance. See sec. 301.6231(c)-7T(a), Temporary Proced. & Admin. Regs. (the bankruptcy regulation), 52 Fed. Reg. 6793 (Mar. 5, 1987), which provides as follows:

(a) Bankruptcy. The treatment of items as partnership items with respect to a partner named as a debtor in a bankruptcy proceeding will interfere 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 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 bankruptcy.

If the bankruptcy regulation applies to convert a partnership item into a nonpartnership item, the effect of the conversion is to except the item from the TEFRA procedures. The tax treatment of the item therefore may be determined in accordance with the deficiency procedures applicable to the partner's individual tax case. See Computer Programs Lambda, Ltd. v. Commissioner, 89 T.C. 198, 203 (1987).

4. Relevant Partnership Item Inquiry

The parties believe that our jurisdiction in this case turns on whether the bankruptcy regulation operates upon the prepetition partnership losses. Respondent argues that the regulation converts the prepetition partnership losses from partnership items to nonpartnership items, while petitioners contend that such losses fall outside the scope of the regulation. We, however, believe that the jurisdictional issue before us is more appropriately resolved on other grounds. Respondent does not challenge the propriety of the prepetition partnership losses. Rather, respondent contends only that those losses should have been reported by Mr. Katz' bankruptcy estate as opposed to Mr. Katz in his individual capacity. Thus, even if we assume that the bankruptcy regulation does not operate to convert the prepetition partnership losses to nonpartnership items,5 we are left with the issue of whether the manner in which partnership items are allocated between a partner in bankruptcy and the partner's bankruptcy estate is a determination which, pursuant to the TEFRA procedures, must be made at the partnership level. We therefore shall determine our jurisdiction based on the resolution of this latter issue.

a. Fundamental Principles Relating to a Partner in

Bankruptcy and the Partner's Bankruptcy Estate

We begin our discussion with a review of some fundamental principles relating to the bankruptcy of an individual debtor. When an individual files a chapter 7 petition in bankruptcy, a bankruptcy estate is created as a separate entity for purposes of both bankruptcy law and tax law. See 11

5 As the determination of whether the bankruptcy regulation converts the prepetition partnership losses to nonpartnership items is not necessary to our decision, we leave that determination for another day.

U.S.C. sec. 541(a) (1994); sec. 1398.6 The estate succeeds to all legal and equitable interests of the debtor in property, as well as certain tax attributes of the debtor. See 11 U.S.C. sec. 541(a)(1); sec. 1398(g). The estate computes its tax liability in the same manner as a married individual filing a separate return, see sec. 1398(c), and the chapter 7 trustee is responsible for filing tax returns throughout the duration of the bankruptcy proceeding, see sec. 6012(b)(4); see also 11 U.S.C. sec. 704(8) (1994).

b. Allocation Inquiry as Framed by Petitioners

Petitioners contend that the manner in which the prepetition partnership losses are allocated "among the partners" constitutes a partnership item under the TEFRA procedures. We agree with petitioners as to the merit of this proposition. As provided in section 6226(f), the manner in which partnership items are allocated among the partners is a determination which this Court may make in the course of a partnership-level proceeding:

SEC. 6226(f). SCOPE OF JUDICIAL REVIEW.-A court with which a petition is filed in accordance with this section shall have jurisdiction to determine all partnership items of the partnership for the partnership taxable year to which the notice of final partnership administrative adjustment relates, the proper allocation of such items among the partners, and the applicability of any penalty, addition to tax, or additional amount which relates to an adjustment to a partnership item. [Emphasis added.]

Since the allocation of partnership items among the partners may be resolved at the partnership level, it follows that such allocation is itself a partnership item under the TEFRA procedures. See Rule 240(b)(2) (defining a "partnership action" as an "action for readjustment of partnership items" under section 6226); see also H. Conf. Rept. 97-760, at 611 (1982), 1982-2 C.B. 600, 668 (stating that "Neither the Secretary nor the taxpayer will be permitted to raise nonpartnership items in the course of a partnership proceeding").

While we agree with petitioners that the manner in which partnership items are allocated among the partners is a determination that must be resolved at the partnership level,

6 Sec. 1398 was enacted as part of the Bankruptcy Tax Act of 1980, Pub. L. 96-589, sec. 3, 94 Stat. 3397. Sec. 1398 does not apply to all types of bankruptcy proceedings but rather only to proceedings under ch. 7 (relating to liquidations) or ch. 11 (relating to reorganizations) of the U.S. Bankruptcy Code in which the debtor is an individual. See sec. 1398(a).

we note that respondent is not seeking to allocate the prepetition partnership losses from Mr. Katz to one or more other partners of record in the subject partnerships. Rather, respondent questions the allocation of partnership losses between one partner of record and that partner's bankruptcy estate. Accordingly, the relevant allocation is not expressly within the scope of section 6226(f). See, e.g., Hang v. Commissioner, 95 T.C. 74, 80 (1990) (describing an allocation of subchapter S items between a shareholder of record and the purported beneficial owner of such shares not expressly within the scope of section 6226(f)).7

c. Proper Allocation Inquiry

The issue that we must decide is, once a partnership has allocated partnership items in respect of the interest of a partner who has commenced a bankruptcy proceeding during the partnership taxable year, whether the subdivision of those items between the partner and his bankruptcy estate constitutes a partnership item under the TEFRA procedures. Resolution of this is tantamount to determining whether a partner in bankruptcy and his bankruptcy estate should be treated as separate "partners" for purposes of section 6226(f).

i. Should a Debtor and His Bankruptcy Estate Be Treated as One or Two Partners?

We believe that a partner in bankruptcy and his bankruptcy estate are appropriately treated as a single partner for purposes of TEFRA procedures. While the bankruptcy estate arises as a distinct legal entity upon the debtor's filing

7 Pursuant to the S corporation audit and litigation procedures (S corporation procedures), secs. 6241 through 6245, a "subchapter S item" is defined as "any item of an S corporation to the extent regulations prescribed by the Secretary provide that, for purposes of this subtitle, such item is more appropriately determined at the corporate level." Sec. 6245. The tax treatment of a subch. S item generally must be determined in a corporate-level proceeding. See sec. 6241. The S corporation procedures were enacted shortly after the TEFRA procedures as part of the Subchapter S Revision Act of 1982, Pub. L. 97-354, sec. 4(a), 96 Stat. 1691. (The S corporation procedures were repealed as of Dec. 31, 1996, by the Small Business Job Protection Act of 1996, Pub. L. 104-188, sec. 1307(c)(1), 110 Stat. 1781.) Sec. 6244 makes certain provisions of the TEFRA procedures relating to partnership items applicable to subch. S items, except as modified or made inapplicable by the regulations. Among the incorporated provisions is sec. 6226, which governs the judicial determination of partnership items. See sec. 6244(2); see also S. Rept. 97640, at 25 (1982), 1982-2 C.B. 718, 729.

8 Mr. Katz and his bankruptcy estate each satisfy the definition of a partner under sec. 6231(a)(2). However, we do not interpret this characterization as requiring that the two be treated as separate partners under the TEFRA procedures.

of a petition for relief, the estate cannot be characterized as unrelated to the debtor. Rather, the bankruptcy estate functions as the debtor's economic proxy, created to facilitate the disposition of the debtor's property pursuant to the Federal bankruptcy laws. It is between these two related entities that the beneficial ownership of a single partnership interest will change hands through the course of the bankruptcy proceeding. See 11 U.S.C. sec. 541(a)(1) (1994) (initial transfer to the bankruptcy estate); id. sec. 554(a) (permitting bankruptcy trustee to abandon property of the estate that is burdensome or of inconsequential value); id. sec. 726(a)(6) (distribution to the debtor of any property of the estate that remains after allowed claims have been satisfied). When viewed from the perspective of the partnership in its determination of each partner's distributive share of partnership tax items, a partner in bankruptcy and his bankruptcy estate are properly considered one and the same.

ii. Is the Allocation of a Partner's Distributive Share Between the Partner and His Bankruptcy Estate

a Determination That Should Be Made at the

Partnership Level?

The TEFRA provisions and the accompanying legislative history reflect a desire on the part of Congress to have only those items that are more appropriately determined at the partnership level constitute the subject of a partnership-level proceeding. See secs. 6221, 6231(a)(3); H. Conf. Rept. 97-760, supra at 600, 1982-2 C.B. at 662. The determination of the manner in which items of income, gain, loss, deduction, and credit are allocated among the various partners in a partnership is one best made at the partnership level, because the allocation to one partner necessarily affects the allocation to another. Not surprisingly, the partnership must provide the distributive shares of each of its partners in its information tax return. See Schedule K-1 to Form 1065, U.S. Partnership Return of Income. Yet once the partnership has determined the distributive share of a partner who happens to be in bankruptcy, there exists no statutory obligation upon the partnership to subdivide the distributive share between such