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basis in this company in order to claim this loss." Petitioners
concede that they may not deduct this loss for 1994.
Respondent also determined that petitioners were liable for
the accuracy-related penalty under section 6662(a), on account of
negligence. Respondent determined that this penalty applied to
the total underpayment shown in the notice of deficiency. The
total underpayment was attributable to the disallowed capital
loss, the increased income from the passive loss adjustment, and
two de minimis computational adjustments.
OPINION
The instant dispute involves the recharacterization rule of
section 1.469-2(f)(6), Income Tax Regs., and the attribution rule
of section 1.469-4(a), Income Tax Regs. Respondent used these
rules to recharacterize petitioners' rental income from the River
Falls building from passive income to nonpassive income.
Petitioners do not argue that respondent misapplied these rules
or that the Commissioner lacked the authority to prescribe them.
Petitioners' sole argument is that section 1.469-2(f)(6),
Income Tax Regs., is invalid as applied to them because,
petitioners allege, the Commissioner prescribed section
1.469-4(a), Income Tax Regs., which is necessary to apply the
recharacterization rule to a material participant of a C
corporation's activity, without complying with the notice and
comment requirements of the Administrative Procedure Act (APA),
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