Chester F. and Faye L. Sidell - Page 26

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               (3)  The preamble to the final regulations, 59 Fed. Reg.               
          50485, 50486 (Oct. 4, 1994), T.D. 8565, 1994-2 C.B. 81, 83, states:         
                    The final regulations clarify that in determining                 
               whether a taxpayer materially or significantly                         
               participates in an activity, a taxpayer may group that                 
               activity with activities conducted through C corporations              
               that are subject to section 469 (that is, personal                     
               service and closely held C corporations). [Emphasis                    
          It is inferable from the elimination of the aforementioned                  
          statement in the temporary regulations of 1989 and the preamble to          
          the proposed regulations of 1992 that the Secretary did not intend          
          in those proposed regulations to adhere to the position previously          
          taken in the temporary regulations.  As we noted in Schwalbach v.           
          Commissioner, supra, there is nothing in the 1992 proposed                  
          regulations that would lead us to believe that the Secretary was            
          proposing to retain the rule set forth in the 1989 temporary                
          regulations that the activities of a C corporation are not to be            
          attributable to the corporation's shareholders.  See Schwalbach v.          
          Commissioner, 111 T.C. at 228.                                              
               Because the proposed regulations are silent as to whether the          
          activities of a C corporation are or are not attributable to the            
          corporation's shareholders, the 1992 proposed regulations are of no         
          benefit to petitioners in determining their 1993 and 1994 tax               
               Finally, we turn our attention to petitioners' credit                  
          argument.  A passive activity credit is defined as "the amount * *          

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