- 6 -
year." Section 163(d)(3) defines "investment interest" as "any
interest allowable as a deduction under this chapter * * * which
is paid * * * on indebtedness properly allocable to property held
for investment." Section 163(d)(5) defines "property held for
investment" as follows:
(A) In general. The term "property held for investment"
shall include--
(i) any property which produces income of a type
described in section 469(e)(1), and
(ii) any interest held by a taxpayer in an
activity involving the conduct of a trade or
business--
(I) which is not a passive activity, and
(II) with respect to which the taxpayer
does not materially participate.
* * * * * * *
(C) Terms.--For purposes of this paragraph, the terms
"activity", "passive activity", and "materially
participate" have the meanings given such terms by
section 469.
The income described in section 469(e)(1) includes "interest,
dividends, annuities, or royalties not derived in the ordinary
course of a trade or business", sometimes known as portfolio
income.
The dispute in this case revolves around whether the Russon
Brothers stock is "property held for investment". Respondent has
stipulated that petitioner materially participates in Russon
Brothers, and concedes that section 163(d)(5)(A)(ii) does not
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