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(e) Special rules for determining income or loss from a
passive activity.--For purposes of this section--
(1) Certain income not treated as income from passive
activity.--In determining the income or loss from
any activity--
(A) In general.--There shall not be taken into
account--
(i) any--
(I) gross income from interest,
dividends, annuities, or royalties not
derived in the ordinary course of a trade or
business,
(II) expenses (other than interest)
which are clearly and directly allocable to
such gross income, and
(III) interest expense properly
allocable to such gross income, and
(ii) gain or loss not derived in the
ordinary course of a trade or business which is
attributable to the disposition of property--
(I) producing income of a type
described in clause (i), or
(II) held for investment.
For purposes of clause (ii), any interest in a
passive activity shall not be treated as property
held for investment.
Temporary regulations refer to income described in the above
section as "portfolio income". Sec. 1.469-2T(c)(3)(i), Temporary
Income Tax Regs., 53 Fed. Reg. 5716 (Feb. 25, 1988).
The passive loss rules were enacted as part of the Tax
Reform Act of 1986 (TRA 1986), Pub. L. 99-514, 100 Stat. 2085, in
response to the Congressional belief that "decisive action * * *
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