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the application of section 469(b). Indeed, a principal function
of section 469(g) is to take into account the suspended PAL's
created by section 469(a) and (b). Although the excess PAL's are
no longer treated as PAL's, they are derived from suspended
PAL's.
In our view, a precondition to the applicability of the
parenthetical language in section 469(g)(1)(A) is that the
suspended PAL's be available under section 469(b). Our previous
analysis indicates that section 1371(b) makes the PAL's
unavailable in the year at issue and therefore precludes the
application of section 469(b) and consequently section
469(g)(1)(A).
Petitioner further argues that section 469(f)(2) provides
specifically for the situation at issue herein. That section
provides:
If a taxpayer ceases for any taxable year to be a
closely held C corporation * * *, this section shall
continue to apply to losses and credits to which this
section applied for any preceding taxable year in the
same manner as if such taxpayer continued to be a
closely held C corporation * * *.
Respondent responds that the legislative history of section
469(f)(2) indicates that this section was meant to apply to
closely held C corporations that become "regular" C corporations,
not to those that become S corporations.
While the legislative history discusses a closely held C
corporation that, due to change in stock ownership, is no longer
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