If you use @e to give an effect to all entities, it will return "that entity cannot be found" for any entities that can not have effects, like dropped items.
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Is this still an issue in the most recent versions (currently that is 1.10.2, or 16w42a) of Minecraft? If so, please update the affected versions and help us keeping this ticket updated from time to time. If you are the owner/reporter of this ticket, you can modify the affected version(s) yourself.
Happens also with /entitydata in 1.8.