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The 1988 temporary regulations (prior to the 1989 amendment)
and the 1989 temporary regulations are not applicable to the year
at bar.5 The applicable rules are found in: (1) The 1992
proposed regulations, (2) the 1992 final regulations, and (3) the
1994 final regulations. The 1994 final regulations do not help
petitioner’s cause because they provide specifically that “A
taxpayer’s activities include those conducted through C
corporations that are subject to section 469”.6 Sec. 1.469-4(a),
Income Tax Regs. Nor are the 1992 final regulations of any help
to petitioner; as mentioned above, the parenthetical exception
“(directly or indirectly, other than through a C corporation)”
does not appear in those regulations. The 1992 proposed
regulations also do not help petitioner’s cause; the 1992
proposed regulations do not contain the exception set forth in
the 1989 temporary regulations.
Petitioner looks to the fact that the 1992 proposed
regulations did not affirmatively and expressly disavow the
exception set forth in the 1989 temporary regulations, and he
discerns therefrom that the exception continued to exist in 1992.
5 For completeness, we note that the Secretary allowed the
1989 temporary regulations to expire on May 11, 1992, under the
sunset provision of sec. 7805(e)(2). See 57 Fed. Reg. 20803 (May
15, 1992).
6 Neither party disputes that the corporation operating the
law firm is a C corporation subject to sec. 469. See sec. 1.469-
1T(b)(4) and (5), Temporary Income Tax Regs., 53 Fed. Reg. 5686,
5701 (Feb. 25, 1988) (a C corporation is subject to sec. 469 if
it is a “Personal service” or “Closely held” corporation.
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