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the corporate level, specifically including the section 1374
built-in gains tax.
Petitioner contends that the regulation is invalid because
it subjects the corporate entity to unified audit and litigation
procedures. Petitioner contends in the alternative that the
section 1374 tax is not a subchapter S item of the corporation
but rather an S item of the shareholders. To support this,
petitioner contends that the built-in gains tax is a subchapter S
item only to the extent it affects (i.e., reduces) the share of
net income passed through to each of the S corporation’s
shareholders.
E. Whether Sec. 301.6245-1T, Temporary Proced. & Admin. Regs.,
Is Invalid
Section 301.6245-1T, Temporary Proced. & Admin. Regs.,
supra, was promulgated pursuant to a specific grant of authority
in section 6245. As a legislative regulation, it is entitled to
greater deference than an interpretative regulation promulgated
under the Secretary’s general rulemaking power under section
7805(a), Peterson Marital Trust v. Commissioner, 102 T.C. 790,
797-798 (1984), affd. 78 F.3d 795 (2d Cir. 1996), and is invalid
only if it is arbitrary, capricious, or manifestly contrary to
the statute, Chevron U.S.A., Inc. v. Natural Res. Def. Council,
Inc., 467 U.S. 837, 844 (1984).
Citing Goodson-Todman Enters., Ltd. v. Commissioner, 784
F.2d 66, 73-74 (2d Cir. 1986), affg. 84 T.C. 255 (1985),
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