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carry out the provisions of section 469. The statute provides
for broad regulatory categories or subject matter, but it is
silent on the particular items or circumstances to be
specifically promulgated. Implementing a directive in the
legislative history regarding self-charged lending situations,
the Secretary issued a proposed regulation permitting offset of
passive interest deductions against nonpassive interest income.
See sec. 1.469-7, Proposed Income Tax Regs., 56 Fed. Reg. 14034
(Apr. 5, 1991). The legislative history also anticipated that
the Secretary would, to the extent appropriate, issue regulations
addressing other self-charged situations.
Petitioners contend that they should be allowed self-charged
treatment with respect to their pro rata share of the management
fees expense deducted by the partnerships and therefore be
allowed to offset it against their share of management income
received from SMC.3 Respondent does not dispute that the
circumstances in this case comport with the circumstances
described in the proposed regulation with the exception that the
regulatory subject matter is interest expense instead of
management fees expense.
3 Petitioners seek to offset their management fees expense
against their management income by recharacterizing the expense
as nonpassive. We note, however, that whether the offsetting
items of income and expense are characterized both as passive or
nonpassive makes no difference from a practical standpoint.
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