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applying section 183--some taxpayers were denied the opportunity
to use the presumption where the Commissioner challenged the
status of the activity before the end of the presumption period.
As a result, section 183(e) was enacted by the Revenue Act of
1971 (1971 Act), Pub. L. 92-178, sec. 311, 85 Stat. 497, 525-526.
Paragraph (1) of section 183(e) permits a taxpayer to elect to
delay the determination of whether the section 183(d) presumption
applies. Paragraph (2) of section 183(e) applies the presumption
to all of the years in the testing period; i.e., 5 years
generally and 7 years as to horse-related activities. Paragraph
(3) of section 183(e) gives the Secretary broad powers as set
forth supra note 2.
The Senate Committee on Finance report explains the 1971 Act
as follows:
The committee is aware that because of the 5- or 7-year
periods involved in the case of the presumption, the statute
of limitations may run before any action could otherwise be
taken under the provision added by the committee. For this
reason, the committee believes that this provision should
not generally be applicable unless the taxpayer executes a
waiver of the statute of limitations for the 5- or 7-year
period and for a reasonable time thereafter. This will
allow the taxpayer time to claim any refunds of tax paid
during this period and also will allow the Internal Revenue
Service to assess any deficiencies. [S. Rept. 92-437, at 74
(1971), 1972-1 C.B. 600, emphasis added; see also Staff of
Joint Comm. on Taxation, General Explanation of the Revenue
Act of 1971, at 71-72 (J. Comm. Print 1972).]
Section 183(e) as enacted in the 1971 Act was identical to the
language reported by the Senate Committee on Finance.
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