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real estate activity. In that event, there is a passive
activity gain for both 1992 and 1993, rather than a passive
activity loss. On the other hand, if the interest income
is portfolio income, as respondent contends, then it is not
taken into account in determining the income or loss from
petitioner's rental real estate activity. Sec.
469(e)(1)(A)(i)(I). In that event, there are passive
activity losses for 1992 and 1993, as computed by
respondent.
The parties agree that section 469 does not apply to
petitioner after 1993 by reason of the amendment of section
469 that added the special rules for taxpayers in the real
property business set forth in section 469(c)(7). We also
note that respondent did not apply section 469 to
petitioner's returns for years before 1992.
Petitioner's principal argument is that it was in "the
trade or business of acquiring and selling real estate and
carrying the mortgages on real property which it sold."
Accordingly, petitioner takes the position that "the
interest income which it received during taxable years 1992
and 1993 should be included in computing whether or not
petitioner incurred a [passive activity] loss from its real
estate business during the years in question." Petitioner
relies upon the same arguments described above in
connection with its contention that its interest income is
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