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income and deductions result in no economic significance. For
that proposition, petitioners reference section 61 and cases,
including Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 431
(1955).
Petitioners also argue that respondent’s disallowance is
inconsistent with the fundamental and global principle of
matching income and expenses for purposes of taxation. In
addition, they question whether there is some form of ordering of
various Code provisions so that, for example, partnership
provisions should not be preempted by section 469. Finally,
petitioners argue that section 469 was not intended to negate
these fundamental principles.
The principles referenced by petitioners are not being
obviated or eclipsed by respondent’s application of section 469.
Such principles (i.e., the question of what is income, rules of
subchapter K, etc.) precede the congressionally imposed section
469 limitation on reductions of nonpassive income by passive
deductions. To the extent that the passive losses cannot be
used, Congress has provided that they may be carried into the
future to apply against a future year’s passive income. Section
469 expressly limits petitioners’ ability to offset the real
estate entities’ passive management fee deductions against SMC’s
(petitioner’s) nonpassive management fee income from the same
transaction. SMC and the real estate entities are, for purposes
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Last modified: May 25, 2011