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specifically disavow the rule of nonattribution as stated in the
first set of regulations means that the nonattribution rule
continued to apply up until the time that the Commissioner issued
the third set of regulations which provided explicitly that "A
taxpayer's activities include those conducted through C
corporations that are subject to section 469". Sec. 1.469-4(a),
Income Tax Regs.
We disagree with petitioners' assertion that Dr. Connor
cannot be a material participant of the dental activity of his
personal service corporation in a taxable year for which the
effective date and transition rules apply. In Schwalbach v.
Commissioner, supra, a setting strikingly similar to the setting
at hand, the taxpayers argued similarly that the effective date
and transition rules of section 1.469-11(b)(1), Income Tax Regs.,
coupled with no mention of attribution in the second set of
regulations, allowed them to apply a nonattribution rule similar
to that appearing in the first set of regulations. We disagreed.
See id. at 230. Petitioners' attempt to dismiss as dicta our
quick disposition of that issue is unavailing. That the
taxpayers in Schwalbach could not escape the moorings of the
attribution rule flowed naturally from our discussion of the
primary issue. As we had observed, an attribution rule appears
in the third set of regulations, the preamble to those
regulations clarifies that the silence as to attribution in the
second set of regulations indicates that attribution was meant to
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