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the 1992 proposed regulations, that shareholders participated in
the activities of their C corporations. Moreover, the addition
of an express attribution rule to the 1994 final regulations was
a significant change from those proposed regulations. The only
possible purpose of the transitional rule contained in the 1994
final regulations was to protect taxpayers from this type of
unanticipated change during the interim period.
The Commissioner has abused the regulatory process in
backing and filling on the transitional rule issue in this case
and in previous cases. Having with one hand granted transitional
relief in the 1994 final regulations by allowing C corporation
shareholders for 1993-94 to apply the 1992 proposed regulations,
the Commissioner should not be able to take it away with the
other, through statutory notices and litigation.
I would hold that shareholders who received net rental
income from their C corporations--during years to which the 1992
proposed regulations apply--are not subject to the
recharacterization rule. The majority’s holding to the contrary
is incorrect.
CHABOT, PARR, WHALEN, HALPERN, GALE, and MARVEL, JJ., agree
with this concurring in part and dissenting in part opinion.
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