- 46 -
rule. With respect to the issue in the case at hand, the
recharacterization rule and the 1992 proposed regulations are
ambiguous.
Nevertheless, setting aside for the moment any inferences
that may be drawn from the silence (or other ambiguity) of the
1992 proposed regulations, three aspects of those regulations are
crystal clear. First, the 1992 proposed regulations do not
expressly provide that a shareholder participates in C
corporation activities. Second, the 1992 proposed regulations do
not expressly disavow the rule of nonattribution that had been
set forth in the 1988 and 1989 temporary regulations. Third, the
1992 proposed regulations neither state that the Commissioner was
changing his position on shareholder participation in C
corporation activities, nor explain why such a change was being
made. For all these reasons, the standards of fairness developed
by this Court require us to interpret the ambiguity of the 1992
proposed regulations as maintaining the nonattribution
interpretation of the statute and the recharacterization rule
formerly contained in the temporary regulations.
As an example of these standards of fairness, we noted in
Georgia Fed. Bank v. Commissioner, 98 T.C. at 110, that sharp
changes of agency course constitute danger signals to which a
reviewing court must be alert; we also stated that an agency that
changes its position must acknowledge that its interpretation has
Page: Previous 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 NextLast modified: May 25, 2011