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Temporary Income Tax Regs., 54 Fed. Reg. 20543 (serves as text of
proposed regulations). As applicable herein, section
1.469-4T(b)(2)(ii)(B), Temporary Income Tax Regs., 54 Fed. Reg.
20543, provided:
(B) Operations conducted through
nonpassthrough entities. For purposes of
applying section 469 and the regulations
thereunder, a taxpayer's activities do not
include operations that the taxpayer conducts
through one or more entities (other than
passthrough entities). The following example
illustrates the operation of this paragraph
(b)(2)(ii)(B):
Example. (i) A, an individual, owns
stock of X, a closely held corporation * * *
that is directly engaged in the conduct of a
real estate development business. A
participates in X's real estate development
business, but does not own any interest in
the business other than through ownership of
the stock of X.
(ii) X is subject to section 469 * * *
and does not hold the real estate development
business through another entity.
Accordingly, for purposes of section 469 and
the regulations thereunder, the operations of
X's real estate development business are
treated as part of X's activities.
(iii) A is also subject to section 469 *
* *, but A's only interest in the real estate
development business is held through X. X is
a C corporation and therefore is not a
passthrough entity. Thus, for purposes of
section 469 and the regulations thereunder,
A's activities do not include the operations
of X's real estate development business.
Accordingly, A's participation in X's
business is not participation in an activity
of A, and is not taken into account in
determining whether A materially participates
* * * or significantly participates * * * in
any activity. * * *
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