- 19 -
closely held, it does so as an example of the situation that
arises "when a corporation * * * subject to the passive loss rule
ceases to be subject to the passive loss rule because it ceases
to meet the definition of an entity subject to the rule." S.
Rept. 99-313, supra, 1986-3 C.B. (Vol. 3) at 728. Under these
circumstances and given the broad statutory language, we think
that section 469(f)(2) applies to St. Charles, which ceased to be
a closely held C corporation by virtue of its subchapter S
election.
Section 469(f) ensures that once a taxpayer has suspended
PAL's, the taxpayer's use of the suspended PAL's continues to be
subject to section 469. Thus, section 469(f)(1) provides that,
where the activity is no longer passive with respect to the
taxpayer, the unused PAL's are to be used to offset income from
that activity, and any remaining PAL's shall be treated as
arising from a passive activity. Section 469(f)(2) provides that
PAL's shall continue to be treated as such where the taxpayer is
no longer a closely held C corporation (and otherwise would not
be subject to section 469). Thus, the passive nature of St.
Charles' PAL's is preserved.
Petitioner argues that section 469(f)(2) requires St.
Charles to use the suspended PAL's and that, if it is not
permitted to use them against the gains from the disposition of
the disposed passive activities, it will be denied the use of the
PAL's forever. Petitioner seeks to buttress this position by
Page: Previous 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 NextLast modified: May 25, 2011