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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.13
As relevant to this case, the Tax Reform Act of 1969 (TRA
1969), Pub. L. 91-172, sec. 221(a), 83 Stat. 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. 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
12(...continued)
utilized this definition on Form 4952, General Instructions, for
Line 4b (“Net gain from the disposition of property held for
investment is the excess, if any, of total gains over total
losses from the disposition of property held for investment.”).
13 H. 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.
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