- 15 -
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.
Page: Previous 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 NextLast modified: May 25, 2011