St. Charles Investment Co., Burton C. Boothby, Tax Matters Person - Page 24

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          qualifies under a specific Code provision whereas 'allowed                  
          deduction', on the other hand, refers to a deduction granted by             
          the Internal Revenue Service which is actually taken on a return            
          and will result in a reduction of the taxpayer's income tax."               
          Lenz v. Commissioner, 101 T.C. 260, 265 (1993).                             
               Petitioner asserts that depreciation, which was deducted in            
          computing the PAL's, was neither allowed nor allowable because              
          they were "disallowed".  In support of this position, petitioner            
          points to section 1.469-1T(f)(2)(ii), Temporary Income Tax Regs.,           
          53 Fed. Reg. 5706 (Feb. 25, 1988), see supra p. 13, where the               
          method for allocating deductions entering into the calculation of           
          a PAL, is that "a ratable portion of each passive activity                  
          deduction * * * of the taxpayer from such activity is disallowed"           
          (emphasis added).  Petitioner insists that the phrase "is                   
          disallowed" means that the depreciation was neither allowed nor             
          allowable.  Noting that the loss to which the depreciation                  
          deduction contributed was a nondeductible PAL and therefore                 
          produced no tax benefit, petitioner concludes that the                      
          depreciation deduction cannot be considered "allowed" or                    
          "allowable" within the meaning of section 1016(a)(2).                       
               We disagree.  To a large degree, our reasons for so doing              
          have been set forth in our analysis of the provisions of the                
          regulations, upon which petitioner relies, in connection with               
          petitioner's assertion that the deductions and not the PAL are              
          the subject of the carryover.  See supra p. 13.                             

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