- 10 -
percent of the period during which he held the interest in the
property. Petitioner therefore argues that the gain is passive
income under section 1.469-2T(c)(2)(i), Temporary Income Tax
Regs., 53 Fed. Reg. 5686, 5711-5712 (Feb. 25, 1988), and section
1.469-2(c)(2)(iii), Income Tax Regs.
Respondent argues that petitioner’s gain is attributable to
the disposition of dividend-producing property which was not
derived in the ordinary course of a trade or business.
Respondent therefore contends that the gain on the sale of the
pledged stock is portfolio income under section 469(e)(1)(A) and
section 1.469-2T(c)(3)(i)(C), Temporary Income Tax Regs., 53 Fed.
Reg. 5686, 5713 (Feb. 25, 1988).
Which Rule Applies?
In order to understand how the rules relied on by the
parties interrelate and decide which rule controls in the present
case, we look at the general structure of section 469 and the
applicable regulations thereunder. The regulation relied on by
petitioner, i.e., section 1.469-2(c)(2)(iii), Income Tax Regs.,
is part of the general rules defining passive activity gross
income under section 469. The Internal Revenue Code section and
regulation relied on by respondent, i.e., section 469(e)(1)(A)
and section 1.469-2T(c)(3)(i)(C), Temporary Income Tax Regs., 53
Fed. Reg. 5686, 5713 (Feb. 25, 1988), except from those general
rules a disposition of property of a type that produces portfolio
income.
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