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explains why portfolio income is not taken into account in
determining the income or loss from a passive activity as
follows:
Portfolio investments ordinarily give rise
to positive income, and are not likely to
generate losses which could be applied to shelter
other income. Therefore, for purposes of the
passive loss rule, portfolio income generally is
not treated as derived from a passive activity,
but rather is treated like other positive income
sources such as salary. To permit portfolio
income to be offset by passive losses or credits
would create the inequitable result of restrict-
ing sheltering by individuals dependent for sup-
port on wages or active business income, while
permitting sheltering by those whose income is
derived from an investment portfolio.
S. Rept. 99-313, at 728 (1986), 1986-3 C.B. (Vol. 3) 1,
728.
We agree with respondent that petitioner has not shown
that it was in the trade or business of selling real
properties. Rather, petitioner's business was developing
and holding real property for rental. Based upon that
finding, we agree with respondent that the interest
received by petitioner was "not derived in the ordinary
course of a trade or business" and is not taken into
account in determining the income or loss from petitioner's
rental activity. See sec. 469(e)(1)(A)(i)(I). This find-
ing is based upon all of the facts and circumstances of
this case and is consistent with Mr. McKelvey's statements
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