- 39 -
portfolio income). S. Rept. 99-313, supra, 1986-3 C.B. (Vol. 3)
at 713. The passive activity loss rules in section 469 curtail
the use of tax shelters by restricting a taxpayer's ability to
use the losses sustained in the operation of a trade or business
to shelter unrelated income, unless the taxpayer materially
participates in the operation of that trade or business. Id. at
716.
A material participation test that implicates the amount and
extent of time a taxpayer spends being involved in the operations
of a particular activity helps to achieve the underlying purpose
of section 469, since the greater the amount of time devoted by
the taxpayer to the activity, the greater the likelihood that the
taxpayer invested in the activity based on the nontax economic
profit potential of the activity as opposed to the potential for
return on the investment in the form of a reduction of taxes on
unrelated income. In addition, it seems to us that a material
participation test that considers the amount and extent of time
spent by a taxpayer in an activity will have the intended effect
of restricting the use of losses from certain types of trade or
business activities that Congress decided to treat as passive
activities, since few persons who make an investment in a tradi-
tional tax shelter devote a substantial amount of time to any
such investment.
Based on our examination of section 469 and its legislative
history, and section 1.469-5T(a)(1), Temporary Income Tax Regs.,
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