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activities conducted through C corporations with other
activities. See 59 Fed. Reg. 50485, 50486 (Oct. 4, 1994). The
1992 proposed regulations’ grouping rule (contained in section
1.469-4(j) of the 1992 proposed regulations, 57 Fed. Reg. 20802,
20805 (May 15, 1992)) had provided as follows:
(j) Activities conducted through partnerships or
S corporations. A partnership or S corporation must
group its activities under the rules of this section.
Once a partnership or S corporation determines its
activities, a partner or shareholder groups those
activities with activities conducted directly by the
partner or shareholder or with activities conducted
through other partnerships or S corporations in
accordance with the rules of this section.
As the above-quoted passage makes clear, the grouping rule
of the 1992 proposed regulations provided that a taxpayer could
group activities conducted through passthrough entities with
activities conducted directly. Notwithstanding the
Commissioner’s claim in the preamble, I fail to understand how a
rule entitled “Activities conducted through partnerships or S
corporations”, and which refers explicitly several times only to
such passthrough entities, could be “clarified” to provide that a
taxpayer may group activities conducted through nonpassthrough
entities as well, such as “C corporations that are subject to
section 469".
Our decision in Schwalbach v. Commissioner, 111 T.C. 215
(1998), also establishes that the express attribution rule of the
1994 final regulations was not simply a “clarification” of the
1992 proposed regulations. Although our memorandum opinion in
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