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constituted investment interest, the Court then discussed the
investment interest expense deduction limitation for the limited
purpose of determining the taxpayers’ allowable deduction for the
taxable year. The Court did not address the treatment of a loss
carryover for purposes of calculating investment income because
the taxpayers did not have a loss carryover. Furthermore, at the
time Zohoury was decided, net investment income did not include
long-term capital gain. See TRA 1976 sec. 209(a), 90 Stat. 1542.
Therefore, the Court in Zohoury did not undertake the type of
substantive analysis of the term “investment income” that is
required here.
Second, petitioners' reading of the statute is at odds with
the plain language of the statute. Essentially, petitioners
attempt to attach the phrase "short-term gain” under the TRA 1976
amendment to the current definition of investment income, even
though the phrase does not appear anywhere in section
163(d)(4)(B)(ii). If Congress intended investment income to
include only short-term gain, the phrase "short-term gain" would
have remained in the definition of investment income, which it
does not. If we were to adopt petitioners’ reading of the
statute, we would render meaningless Congress’s explicit
reference in section 163(d)(4)(B)(ii) to the terms “net gain” and
“net capital gain”. Clearly, Congress did not intend this
result, nor do we adopt it.
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