St. Charles Investment Co., Burton C. Boothby, Tax Matters Person - Page 18

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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                 
               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                      
               Petitioner further argues that section 469(f)(2) provides              
          specifically for the situation at issue herein.  That section               
               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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