St. Charles Investment Co., Burton C. Boothby, Tax Matters Person - Page 7

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          determining the existence of a PAL, section 469 treats each                 
          activity separately.                                                        
               Section 1371 was enacted in 1982 by section 2 of the                   
          Subchapter S Revision Act of 1982, Pub. L. 97-354, 96 Stat. 1669,           
          as part of a continuing effort by the Congress to provide a                 
          statutory framework whereby shareholders of closely held                    
          corporations could obtain substantially the same tax treatment as           
          they would have received if they had conducted their activities             
          as a partnership without being required to accept the personal              
          liability attaching to a partner.  Thus, subchapter S, of which             
          section 1371 was a part, dealt with the status of a taxpayer by             
          permitting a corporation to continue as the same corporate entity           
          but treating its income and deductions as those of its                      
          shareholders and taxing them accordingly.  As we observed in                
          Frederick v. Commissioner, 101 T.C. 35, 43 (1993):                          
               conversion from a C corporation to an S corporation                    
               does not create a new taxpayer or otherwise involve a                  
               transfer of assets and liabilities from one entity to                  
               another.  Following its S corporation election, Quanta                 
               is still the same taxpayer; Quanta merely has subjected                
               its income and expenses to a new taxing regime for                     
               Federal income tax purposes.  * * *                                    
               This structural difference, i.e., transactional versus                 
          taxpayer status, is a significant element in synthesizing the               
          application of sections 469(b) and 1371(b)(1).  It facilitates              
          our ability to take into account the objectives of Congress,                
          namely, (1) including section 469(b) to ease the restrictive                
          thrust of section 469 generally by limiting, but not necessarily            

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