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Under circumstances identical to those in the
regulation, except for the fact that the self-charged
items were management fees rather than interest
deductions and income, P offset passive deductions
against nonpassive income. R determined that P was not
entitled to such treatment because R did not issue a
regulation for self-charged items other than interest.
P contends that self-charged treatment was
congressionally intended for interest and other
appropriate items. R does not argue, as a matter of
substance, that there is any distinction between
interest and management fees within the self-charged
regime.
Held: R’s decision not to or failure to issue
regulations in this case is not a prohibition, per se,
to P’s ability to treat self-charged items as intended
by Congress. Held, further, P is entitled to offset
the passive management deductions against the
nonpassive management income.
Stefan F. Tucker and Kathleen M. Courtis, for petitioners.
Wilton A. Baker and Bettie N. Ricca, for respondent.
OPINION
GERBER, Judge: In a notice of deficiency addressed to
petitioners, respondent determined deficiencies of $294,556 and
$309,696 in petitioners’ Federal income tax for the years ended
December 31, 1993 and 1994, respectively. We consider here
whether petitioners are entitled to treat management fees that
generated nonpassive income and passive deductions and were paid
and received by passthrough entities in which petitioners held an
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