Stephen and Ann Schwalbach - Page 15

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               Following comments and a hearing on the first set of                   
          proposed regulations, see Announcement 89-110, 1989-36 I.R.B. 27            
          (Sept. 5, 1989), the Commissioner withdrew the proposed                     
          regulations and allowed the related temporary regulations to                
          expire under the 3-year sunset provision of section 7805(e)(2).             
          See 57 Fed. Reg. 20803.  The Commissioner's actions were driven,            
          in part, by public criticism that the proposed regulations were             
          "overly long and complex, burdensome for small taxpayers, and               
          mechanically inflexible."  Id.  Contemporaneously with the                  
          withdrawal of the proposed regulations, the Commissioner, on May            
          15, 1992, issued a second set of proposed regulations defining              
          the word "activity".  57 Fed. Reg. 20802.  In contrast with the             
          first set, the second set contained a simple "facts-and-                    
          circumstances approach to identify a taxpayer's activities."  Id.           
          In further contrast with the first set of proposed regulations,             
          the second set did not address the treatment of activities which            
          were conducted through a C corporation in which the taxpayer                
          owned an interest.                                                          
               The Commissioner finalized the proposed regulations defining           
          the word "activity" in late 1994 to read in relevant part as set            
          forth above in section 1.469-4(a), Income Tax Regs.  T.D. 8565,             
          1994-2 C.B. 81, 83.  Before doing so, the Commissioner considered           
          the comments that were proffered on the subject.  59 Fed. Reg.              
          50485, 50486 (Oct. 4, 1994).  As was true with respect to the               
          first set of proposed regulations, but which was untrue with                

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