St. Charles Investment Co., Burton C. Boothby, Tax Matters Person - Page 8

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          eliminating, use of PAL's, and (2) including section 1371(b)(1)             
          to narrow the liberalizing thrust of subchapter S generally, and            
          to prevent abuse by limiting, but not necessarily eliminating,              
          the ability of a corporation to utilize subchapter S status to              
          pass on its C status losses to its shareholders, see Rosenberg v.           
          Commissioner, 96 T.C. 451, 455 (1991).                                      
               Respondent's position is straightforward.  Respondent                  
          maintains that section 1371(b)(1) is clear on its face and that             
          the word "carryforward" in that section is not limited and                  
          encompasses PAL's.  Respondent argues that nothing in the                   
          legislative history of either section 1371(b)(1) or 469 casts               
          doubt on respondent's position and that petitioner's attempts to            
          accord a narrow interpretation to the word "carryforward", both             
          directly and by interpolating section 469, are unavailing.                  
               Petitioner's arguments fall into two categories:  (1)                  
          Suspended PAL's are not "carryforwards" within the meaning of               
          section 1371(b)(1), because the PAL rules, set forth in section             
          469, constitute an accounting method which St. Charles should               
          continue to use after its conversion to an S corporation; and (2)           
          pursuant to principles of statutory construction, the specific              
          language of section 469, particularly subsections (f)(2) and                
          (g)(1)(A), precludes the application of section 1371(b)(1).                 
          Petitioner asserts that, unless it is permitted to utilize the              
          suspended PAL's in the year of disposition of the activities                

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