Scott C. and Sherry L. Russon - Page 9

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          property that is held for investment (and that is not a passive             
          activity) and (2) property that normally produces interest,                 
          dividend, or royalty income."  S. Rept. 99-313 at 728 (1986),               
          1986-3 C.B. (Vol. 3).  (Emphasis added.)  This committee report             
          runs counter to petitioners' assertions as set forth in their               
          brief that stock must produce a dividend before it is "property             
          held for investment".  The report indicates that Congress did not           
          require the payment of interest, dividends, etc.  Section                   
          163(d)(5)(A)(i) refers to section 469(e)(1) for one definition of           
          "property held for investment".  Inasmuch as portfolio income               
          under section 469(e)(1) includes property that "normally                    
          produces" interest, dividends, etc., it follows that the                    
          reference to section 469(e)(1) in section 163(d)(5) would also              
          include property which "normally produces" dividends.  Certainly,           
          stock is the kind of property that "normally produces" dividends.           
          Would petitioners' position be different here if the corporation            
          had paid only a very small dividend over the years?                         
               Moreover, on the record in this case, the possibility of               
          dividends being paid was clearly contemplated by the buyers and             
          sellers of the stock.  Indeed, the agreement of sale of the stock           
          explicitly recognized that the purchasers would be entitled to              
          "all of the dividends from the stock", subject only to the                  
          written consent of the sellers prior to the payment in full of              
          the purchase price.  That condition is not at all to be regarded            
          as uncommon where there is a sale of all the stock of a                     




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