114 T.C. No. 6
UNITED STATES TAX COURT
DAVID H. AND SUZANNE HILLMAN, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 19893-97. Filed February 29, 2000.
P’s S corporation (S) performed management
services for real estate partnerships in which P had
direct and indirect interests. P received passthrough
nonpassive income from S and passthrough passive
deductions from the partnerships. Sec. 469(l)(2),
I.R.C., required R to promulgate regulations “which
provide that certain items of gross income will not be
taken into account in determining income or loss from
any activity (and the treatment of expenses allocable
to such income)”. Pursuant to sec. 469(l), I.R.C., R
issued proposed regulations permitting the offsetting
of “self-charged” interest incurred in lending
transactions. Under the regulations, a taxpayer who
was both the payer and recipient of the interest was
allowed, to some extent, to offset passive interest
deductions against nonpassive interest income. R,
however, did not issue any regulation for self-charged
items other than interest. See sec. 1.469-7, Proposed
Income Tax Regs., 56 Fed. Reg. 14034 (Apr. 5, 1991).
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