St. Charles Investment Co., Burton C. Boothby, Tax Matters Person - Page 2

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               Darrell D. Hallett, Larry N. Johnson, Robert J. Chicoine,              
          and John M. Colvin, for petitioner.                                         
               Cathy A. Goodson and William A. McCarthy, for respondent.              


               TANNENWALD, Judge:  This case comes before us on cross-                
          motions for partial summary judgment by the parties under Rule              
          121.1  The issues for decision are:                                         
              (1) Whether suspended passive activity losses (PAL's)                  
          incurred by a closely held C corporation that later elects to be            
          an S corporation may be deducted by the then S corporation in the           
          year the corporation disposes of its entire interest in the                 
          activity generating the losses, and if not,                                 
               (2) whether the basis of the assets used in the activity may           
          be recomputed to restore amounts for portions of the suspended              
          PAL's attributable to depreciation (and the gain or loss from the           
          disposition commensurately recalculated).                                   
               Summary judgment as to those issues is appropriate in this             
          case because there is no genuine issue of fact, and a decision              
          can be made as a matter of law.  Rule 121(b); Northern Ind. Pub.            
          Serv. Co. v. Commissioner, 101 T.C. 294, 295 (1993).                        

               1  Unless otherwise indicated, all statutory references are            
          to the Internal Revenue Code in effect for the year in issue, and           
          all Rule references are to the Tax Court Rules of Practice and              

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