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paid on the tax deferred by reason of the installment sale of
timeshares and residential lots. Petitioners argue that this
regulation is invalid.
Respondent argues that the interest paid by petitioner as a
shareholder of an S corporation, pursuant to section 453(l)(3),
is nondeductible personal interest under section 163(h).
We agree with respondent because, whether or not section
453(l)(3) interest can ever be deemed "properly allocable to a
trade or business" under the exception to personal interest
treatment contained in section 163(h)(2)(A), the trade or
business in this case was that of Aqua Sun, and not that of
petitioners.
S corporations and partnerships, among certain other
entities, are commonly known as "passthrough entities". In
United States v. Basye, 410 U.S. 441, 448 (1973), the Supreme
Court noted that "while the partnership itself pays no taxes, * *
* it must report the income it generates * * * . For this
purpose * * * the partnership is regarded as an independently
recognizable entity." (Emphasis added). The partnership is
thereafter treated as an agent or conduit through which the
income passes; i.e., as a passthrough entity, but nevertheless a
freestanding entity. See id.
Under section 1366, relating to "Pass-thru of items to
shareholders," and specifically subsection (a)(2), nonseparately
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