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activities where the 1992 proposed regulations apply. I
disagree.15
A. The Proposed Regulations’ Silence Is Ambiguous
The long and tortuous history of the section 469 regulations
proves that we need not infer a shareholder participation rule
from the silence of the 1992 proposed regulations. To the
contrary, the history shows that silence was ambiguous.
The recharacterization rule employs the terms “activity”
and “material participation”. As the table, supra p. 36, clearly
shows, under both the 1988 and 1989 temporary regulations, the
definition of one of these key terms didn’t discuss a
shareholder’s participation in C corporation activities.
Nevertheless, under both sets of temporary regulations, a
shareholder clearly did not participate in C corporation
activities, because one or the other of the two key terms was
interpreted as precluding attribution of or participation in such
activities.
15 Our memorandum opinion in Sidell v. Commissioner, T.C.
Memo. 1999-301, made a similar inference in support of its
conclusion that shareholders participate in corporate activities
under the 1992 proposed regulations. Although Sidell v.
Commissioner, 78 T.C.M. (CCH) 53,537 at 430, 1999 T.C.M. (RIA)
par. 99,301 at 99-1929, stated that “Simply put, the proposed
regulations’ silence means nothing, not something”, Sidell
nevertheless concluded that from this silence “it is inferable”
that the Commissioner didn’t intend, in the 1992 proposed
regulations, to adhere to the position of the temporary
regulations.
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