St. Charles Investment Co., Burton C. Boothby, Tax Matters Person - Page 15

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               In the cases of a disposition of an interest in a passive              
          activity by gift or distribution of such an interest by an estate           
          or trust, the basis of the interest is increased by the suspended           
          PAL's allocated to that activity.  Sec. 469(j)(6), (12).                    
          However, while the increase in basis affords the recipient the              
          benefit of using the equivalent of the suspended PAL's upon the             
          recipient's disposition of the activity, the original taxpayer is           
          denied any deduction of the suspended PAL's in any taxable year.            
          Sec. 469(j)(6), (12).  Where the taxpayer transfers the interest            
          in the passive activity by reason of death, the suspended PAL's             
          allocated to that activity are treated as if there were a sale,             
          but only to the extent that the PAL's allocated to that activity            
          exceed the step-up in basis by reason of death to the transferee.           
          Sec. 469(g)(2).  The taxpayer is denied the deduction in any                
          taxable year of the amount of the PAL's allocated to the disposed           
          of activity which equal the amount of the basis step-up.  Id.               
               We are not convinced by petitioner's arguments that                    
          suspended PAL's of St. Charles should be treated as basis                   
          adjustments and therefore should not be considered carryforwards            
          within the meaning of section 1371(b)(1).                                   
               Finally, petitioner argues that, even if PAL's are                     
          carryforwards, section 469 is a specific provision which should             
          prevail over the general provisions reflected by section                    
          1371(b)(1).  It is a basic principle of statutory construction              
          that a specific statute controls over a general provision.                  

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