Chester F. and Faye L. Sidell - Page 21

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          participated in KGR's operations, through his grantor trusts he             
          rented several pieces of real property to KGR.  KGR used the leased         
          property in conducting its apparel business.  By being in effect            
          both the lessor and lessee of the properties in question, Mr.               
          Sidell established the amounts of rent, and, unless the resulting           
          rental income is deemed nonpassive, he could have used all of his           
          passive losses to offset that income.                                       
               Moreover, there is ample legislative history and proper                
          delegation under section 469(l) supporting respondent's attribution         
          of KGR's activities to Mr. Sidell. Specifically, Congress                   
          authorized the Secretary to promulgate regulations that specify             
          what constitutes an "activity" and what constitutes material                
          participation.  Further, Congress permitted the Secretary to                
          promulgate regulations that permitted recharacterization of "net            
          income or gain from a limited partnership or other passive activity         
          as [being] not from a passive activity."  Sec. 469(l)(1), (3).  We          
          believe "other passive activity" encompasses activities of a C              
          corporation engaged in a trade or business.                                 

          distinction, Mr. Sidell's day-to-day management of KGR's only               
          line of business would constitute material participation in all             
          the activities of KGR, which consequently would trigger the self-           
          rented property rule.  See sec. 1.469-5T(a), Temporary Income Tax           
          Regs., 53 Fed. Reg. 5686, 5700 (Feb. 25, 1988), T.D. 8175, 1988-1           
          C.B. 191, 234.                                                              

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