- 9 - excluded portfolio income from the passive loss rules: Portfolio investments ordinarily give rise to positive income, and are not likely to generate losses which could be applied to shelter other income. Therefore, for purposes of the passive loss rule, portfolio income generally is not treated as derived from a passive activity, but rather is treated like other positive income sources such as salary. To permit portfolio income to be offset by passive losses or credits would create the inequitable result of restricting sheltering by individuals dependent for support on wages or active business income, while permitting sheltering by those whose income is derived from an investment portfolio. [S. Rept. 99-313, supra, 1986-3 C.B. (Vol. 3) at 728.] Income of a type generally regarded as portfolio income which is derived in the ordinary course of a trade or business does not fall within the definition of portfolio income. See sec. 469(e)(1)(A); sec. 1.469-2T(c)(3)(i), Temporary Income Tax Regs., 53 Fed. Reg. 5686, 5713 (Feb. 25, 1988). Congress and the Secretary reasoned that “the rationale for treating portfolio- type income as not from the passive activity does not apply [in these instances], since deriving such income is what the business activity actually, in whole or in part, involves.” S. Rept. 99- 313, supra, 1986-3 C.B. (Vol. 3) at 729. For example, banks derive a large majority of their business income from interest. See id. Under this rule, the bank would not treat the interest as portfolio income. See id. Parties’ Arguments Petitioner claims that his gain is attributable to the disposition of substantially appreciated property used in a passive activity (his underwriting activity) for more than 20Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Next
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