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Under the 1994 final regulations, one of the key
definitions–-regarding material participation--still does not
address the question of C corporation shareholder participation.
Yet, as a result of the new activity definition contained in
those regulations, a shareholder clearly participates in C
corporation activities under the regulations as a whole.
The result of all this is that in 1988 and 1989, regulatory
silence with respect to one of the key terms employed by the
recharacterization rule meant that a shareholder did not
participate in C corporation activities. By contrast, in 1994,
such regulatory silence means that the shareholder does
participate in those activities. Under these circumstances, it
is difficult to infer either an intent to repeal a
nonparticipation rule, or an intent to prescribe a participation
rule, from the “silence” of the 1992 proposed regulations. More
tellingly, it would have been far more difficult for petitioners
to divine either of these results from that silence during 1994,
the year in issue; the 1994 final regulations were not
promulgated until October of that year. See supra p. 35.
B. The Canons of Construction Do Not Mandate A
Participation Interpretation
The majority attempt to support their interpretation of the
1992 proposed regulations by reference to a canon of statutory
construction. However, canons of construction simply do not
require us to reach the majority’s result.
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