- 32 -
regulations the recharacterization rule could not apply to income
received by a C corporation’s shareholder/lessor, notwithstanding
the absence of an “activity” definition in those regulations.
B. The 1989 Temporary Regulations
In 1989, the Commissioner issued T.D. 8253, 1989-1 C.B. 121,
54 Fed. Reg. 20527 (May 12, 1989) (the 1989 temporary
regulations). The 1989 temporary regulations amended certain
provisions of the 1988 temporary regulations; they also contained
the first regulation defining “activity” for purposes of section
469, section 1.469-4T, Temporary Income Tax Regs., 54 Fed. Reg.
20527, 20542 (May 12, 1989). See T.D. 8253, 1989-1 C.B. 121,
supra at “Summary”.
The 1989 temporary regulations amended the participation
definition contained in the 1988 temporary regulations by
deleting the parenthetical phrase “(directly or indirectly, other
than through a C corporation)”. Sec. 1.469-5T, Temporary Income
Tax Regs., 54 Fed. Reg. 20527, 20565 (May 12, 1989).12 As a
result, the material participation definition in the 1989
11(...continued)
and (2), 53 Fed. Reg. 5686, 5727 (Feb. 25, 1988).
12 The majority opinion refers to the participation
definition of the 1988 temporary regulations, as amended by the
1989 temporary regulations, as the “amended 1988 temporary
regulations”. I prefer to describe the Commissioner’s
simultaneous 1989 definitions of both “participation” and
“activity” as the 1989 temporary regulations; after all, it was
those definitions taken together that established the law
applicable to 1989.
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