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B. Legislative History
Section 163(d) was enacted to curb the practice of using the
investment interest expense deduction to offset taxable income
(e.g., noninvestment income) in a current taxable year; i.e., to
prevent the "mismatching" of investment income and investment
expenses.10
As relevant to this case, the Tax Reform Act of 1969 (TRA
1969), Pub. L. 91-172, sec. 221(a), 83 Stat. 478, 574, initially
limited the deduction for investment interest expense to $25,000,
plus the amount of net investment income, plus the amount of
long-term capital gain.11 Again as relevant to this case, the
TRA 1969 amendment defined investment income as (i) the gross
income from interest and dividends, (ii) the net short-term
capital gain attributable to the disposition of property held for
investment, and (iii) any amount treated under sections 1245 and
1250 as ordinary income. See sec. 163(d)(3)(B), I.R.C. 1954 as
amended by TRA 1969.
10H. Rept. 91-413, at 72 (1969), 1969-3 C.B. 200, 245,
states in pertinent part:
Where the taxpayer's investment, however, produces
little current income, the effect of allowing a current
deduction for the interest is to produce a mismatching
of the investment income and related expenses of
earning that income. In addition, the excess interest,
in effect, is used by the taxpayer to offset other
income, such as his salary, from taxation.
11Sec. 163(d)(1)(C), I.R.C. 1954 as amended by TRA 1969, is
similar to the sec. 163(d)(4)(B)(ii)(II) net capital gain prong.
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