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Income Tax Regs., 53 Fed. Reg. 5711 (Feb. 25, 1988), was
initially adopted on February 19, 1988. T.D. 8175, 1988-1
C.B. 191. Although amendments to section 1.469-2T,
Temporary Income Tax Regs., supra, have occurred since
adoption, the specific subsections relied upon by
respondent and cited herein have not changed. Therefore,
because section 1.469-2T, Temporary Income Tax Regs.,
supra, was promulgated before section 7805(e)(2) became
effective, it is not subject to the 3-year limitation on
temporary regulations. Accordingly, section 1.469-2T is
valid despite its temporary form.
The principal issue raised by petitioner is whether
the subject interest income is taken into account as
passive activity gross income, as defined by section 1.469-
2T(c)(1), Temporary Income Tax Regs., 53 Fed. Reg. 5711
(Feb. 25, 1988), or whether the subject income qualifies as
portfolio income which is specifically excluded from
passive activity gross income, sec. 1.469-2T(c)(3)(i),
Temporary Income Tax Regs., supra. Portfolio income
includes all gross income, other than income derived in the
ordinary course of a trade or business (as defined by
section 1.469-2T(c)(3)(ii)), Temporary Income Tax Regs.,
supra, that is attributable to several items, including
interest. Sec. 1.469-2T(c)(3)(i)(A), Temporary Income Tax
Regs., supra. The legislative history of section 469
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