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includable in adjusted income from rents as defined by
section 543(b)(3). That is, petitioner contends that the
subject interest income was paid on debts that represent
the price for which real property held primarily for sale
to customers in the ordinary course of its trade or
business was sold or exchanged.
Respondent argues that petitioner is not in the
business of selling real estate. Therefore, according
to respondent, the subject interest income received from
the installment sale of real estate is portfolio income
that is not taken into account in computing the net income
or loss from petitioner's rental activity, pursuant to
section 469(e)(1)(A)(i)(I). Respondent points out that
gains from the sale or exchange of passive activity
property is properly includable in computing income or loss
from a passive activity but that "interest received as
installment sales of real estate represents portfolio
income, which is nonpassive." In support, respondent cites
section 1.469-2T(c)(3)(iv), Example (1), Temporary Income
Tax Regs., 53 Fed. Reg. 5714 (Feb. 25, 1988), which states
as follows:
Example (1). A, an individual engaged in
the trade or business of farming, disposes of
farmland in an installment sale. A is not
engaged in a trade or business of selling
farmland. Therefore, A's interest income from
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