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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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