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loans to a partner (e.g., to finance a partner’s purchase of all
or part of his partnership interest, and the interest expense may
be treated as part of a passive activity). See Staff of Joint
Comm. on Taxation, General Explanation of the Tax Reform Act of
1986, at 233 n.26 (J. Comm. Print 1987). To avoid results that
lack economic significance in this type of transaction, it was
concluded that taxpayers should be permitted to offset the
interest income with respect to a loan to a pass-through entity
(in which he has an ownership interest) against the interest
expenses passed through to the taxpayer for the same taxable
year. See H. Conf. Rept. 99-841 (Vol. II), supra at II-146 to
II-147, 1986-3 C.B. (Vol. 4) at 146-147. While there is no
indication in the legislative history as to whether the
offsetting items of income and expense should both be treated as
passive or nonpassive, that point is irrelevant because the
income and deductions are netted.
The legislative history also contains the suggestion that
the amount of a taxpayer’s interest income from the loan that is
offset by the interest expense of a partnership should not exceed
the taxpayer’s allocable share of the interest expense (which
share for this purpose is not to be increased by a special
allocation). See id. at II-147, 1986-3 C.B. (Vol. 4) at 147.
Although the self-charged interest situation is specifically
recommended as a subject for regulations, the legislative history
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