Chester F. and Faye L. Sidell - Page 17

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               Second, petitioners argue that even if the application of the          
          self-rented rule to a closely held C corporation is deemed valid,           
          attribution/recharacterization cannot apply to any taxable year             
          beginning before October 4, 1994, when the final regulations                
          (discussed infra) were adopted.  Thus, petitioners contend that             
          they may determine their 1993 and 1994 tax liability under the              
          proposed regulations promulgated in 1992 (section 1.469-4, Proposed         
          Income Tax Regs., 57 Fed. Reg. 20802 (May 15, 1982), PS-1-89, 1992-         
          1 C.B. 1219), thereby avoiding the self-rented property rule and            
          rendering the rental income in question as passive (hereinafter             
          this argument is referred to as petitioners' proposed regulations           
          argument). Respondent acknowledges that under the transitional              
          relief provided in section 1.469-11(b), Income Tax Regs., taxpayers         
          are permitted to determine their tax liability in accordance with           
          the 1992 proposed regulations for taxable years ending after May            
          10, 1992, and beginning before October 4, 1994.  Nevertheless,              
          respondent asserts that under those proposed regulations                    
          petitioners' 1993 and 1994 tax liability would be the same as under         
          the final regulations because under the proposed regulations a C            
          corporation's activities would be attributed to its shareholders,           
          resulting in the rental income in question being characterized as           
               Finally, petitioners assert that, assuming arguendo the rental         
          income from the Everett Mill, Kunhardt Mill, and FLS Realty Trust           

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