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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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