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C. Analysis
Petitioners contend that respondent mischaracterized their
investment income for each taxable year at issue by including
capital losses and capital loss carryovers. Petitioners argue
that section 163(d)(4)(B)(ii)(I) requires inclusion of only their
capital gains and, furthermore, that “net gain” does not require
inclusion of their capital losses and capital loss carryovers.
Petitioners’ reading of the statute is at odds with the
plain language of the statute. Essentially, petitioners attempt
to omit the word “net” from the definition of investment income,
even though the phrase is clearly found in section
163(d)(4)(B)(ii)(I). 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 term “net gain”.
(Emphasis added.) Clearly, Congress did not intend this result,
nor do we adopt it.
We hold as a matter of law that petitioners’ capital losses
and capital loss carryovers are an integral part of the equation
in calculating investment income under section 163(d)(4)(B).
Were these losses not included, petitioners would receive a
15(...continued)
(1986) (“[investment income] also includes the gain on investment
property.”); Staff of Joint Comm. on Taxation, General
Explanation of the Tax Reform Act of 1986, at 263, 265 (Comm.
Print 1987) (“Investment income includes * * * gain (whether
long-term or short-term) attributable to the disposition of
property held for investment”.).
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