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Lastly, petitioners argue that the reference in section
4940(c)(4)(C) to "no capital loss carryovers" clearly means that
investment income does not include the loss carryover for
purposes of section 163(d). We disagree.
Section 4940(c)(4)(C) defines the term “net investment
income”, in part, as follows:
(1) In General.--For purposes of subsection (a),
the net investment income is the amount by which (A)
the sum of the gross investment income and the capital
gain net income exceeds (B) the deductions allowed by
paragraph (3). Except to the extent inconsistent with
the provisions of this section, net investment income
shall be determined under the principles of subtitle A.
* * * * * * *
(4) Capital Gains and Losses.--For purposes of
paragraph (1) in determining capital gain net income
* * * * * * *
(C) Losses from sales or other
dispositions of property shall be allowed
only to the extent of gains from such sales
or other dispositions, and there shall be no
capital loss carryovers. [Emphasis added.]
However, section 4940 (Excise Tax Based on Investment
Income) is applicable to Subtitle D--Miscellaneous Excise Taxes,
Chapter 42A--Private Foundations and Other Certain Tax-exempt
Organizations. Here, we are dealing with income taxes on
individual taxpayers; i.e., Subtitle A--Income Taxes, rather than
an excise tax on a private foundation or tax-exempt organization.
In addition, there is no cross-reference between sections 4940
and 163(d) to make section 4940 applicable to this case.
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