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passive activity income6 to use all or any of the suspended PAL's
in that year. In such case, the unused suspended PAL's are again
disallowed and will be similarly treated as a deduction in the
next (third) year, and so on. See H. Conf. Rept. 99-841 (Vol.
II), supra, 1986-3 C.B. (Vol. 4) at 137; S. Rept. 99-313, supra,
1986-3 C.B. (Vol. 3) at 722 (where it is specified that suspended
PAL's are "carried forward indefinitely").
Petitioner further points out that it is only using the
suspended PAL's allocated to the properties which were sold, and
not those allocated to other activities that St. Charles
conducted. Petitioner goes on to argue that the losses at issue
stem entirely from the operation of section 469(g)(1)(A), see
supra p. 5, not from section 469(a) and (b); that is, they
consist solely of excess PAL's that "shall be treated as a loss
which is not from a passive activity." This, petitioner argues,
is another reason why the losses which respondent disallowed are
not carryovers and therefore section 1371(b) is inapplicable.
The application of section 469(g)(1)(A), however, turns on
the meaning of the parenthetical phrase "determined after the
application of subsection (b)" which appears twice therein, once
with respect to the disposed activity and then with respect to
all other passive activities. There is no way to determine the
amount of excess PAL's to be treated as nonpassive losses without
6 For the closely held C corporation, this would include
active income as well. Sec. 469(e)(2).
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