- 34 -
activity definition, it was clear that a shareholder did not
participate in C corporation activities under the 1989 temporary
regulations–-notwithstanding the silence on this issue in the
material participation definition itself.
C. The 1992 Proposed Regulations
In 1992, the Commissioner adopted the participation
definition of the 1989 temporary regulations substantially
unchanged, as final regulation section 1.469-5(f)(1), Income Tax
Regs. See T.D. 8417, 1992-1 C.B. 173, 57 Fed. Reg. 20747 (May
15, 1992).14 At the same time, the Commissioner allowed the
activity definition of the 1989 temporary regulations to “sunset”
under section 7805(e). The Commissioner replaced that definition
with a new proposed activity regulation, section 1.469-4,
Proposed Income Tax Regs. See Notice of Proposed Rulemaking, PS-
1-89, 1992-1 C.B. 1219, 57 Fed. Reg. 20802 (May 15, 1992) (the
1992 proposed regulations). Unlike the 1989 temporary
regulations, the 1992 proposed regulations didn’t contain a
general purpose definition of a taxpayer’s activities. Instead,
the 1992 proposed regulations were silent on whether a
shareholder could participate in the activities of his C
13(...continued)
into account in determining whether A materially
participates (within the meaning of 1.469-5T) * * *
in any activity. [Sec. 1.469-4T(b)(2), Temporary
Income Tax Regs., 54 Fed. Reg. 20543-20544 (May 12,
1989).]
14 The majority opinion refers to this definition as the
1992 final regulations.
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