- 9 -
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
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 Next
Last modified: May 25, 2011