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states whether a taxpayer can “participate” in the activities of
entities he owns. Nor does the recharacterization rule, which
uses these terms, provide a definition of either of them.
If I were writing on a clean slate, before the Commissioner
had issued any relevant regulations defining “material
participation” or “activity”, I might conclude that a shareholder
could participate in the activities of his C corporations, under
a plausible interpretation of the statute.8 However, the slate
was far from clean during the year in issue. As discussed in
more detail below, on at least four separate occasions--in 1988,
1989, 1992, and 1994–-the Commissioner issued temporary,
proposed, or final regulations interpreting “activity” or
“participation” for purposes of section 469.
Of course, the mere existence of these detailed and often
contradictory versions of the regulations is compelling evidence
that the meaning of section 469 is anything but plain.9 Above
8 I’m not sure, however, that even in the absence of
regulations I would agree with the majority that attributing C
corporation activities to the shareholder is a foregone
conclusion under either the statute or the recharacterization
rule. Both the tax common-law rule of Moline Properties, Inc. v.
Commissioner, 319 U.S. 436 (1943), and the necessity of statutory
stock ownership attribution rules in other areas, e.g., secs.
267, 318, and 544, would give me pause, even if they wouldn’t bar
this approach.
9 One of the section 469 regulations–-the temporary
“activity” regulation promulgated in 1989–-alone occupied over 20
pages of the Federal Register. See sec. 1.469-4T, Temporary
Income Tax Regs., 54 Fed. Reg. 20527, 20542-20565 (May 12, 1989).
As described in the text infra p. 34, the Commissioner allowed
(continued...)
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