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1.469-2(f)(6), Income Tax Regs., apply to recharacterize passive
income as nonpassive. Respondent contends that section 1.469-
2(f)(6), Income Tax Regs., requires the removal of self-rental
income from the passive activity loss computation and that, after
income from the Bear Valley Road property is properly removed
from the passive activity loss computation, petitioners are left
with no passive income to offset against the passive loss on the
John Glenn Road property. We conclude that section 469(d) and
the legislative regulations of section 1.469-2(f)(6), Income Tax
Regs., support respondent’s position.
Section 469(l)(2) explicitly authorizes the promulgation of
regulations to remove certain items of gross income from the
calculation of income or loss from any activity. Section 1.469-
2(f)(6), Income Tax Regs., is a legislative regulation and is
entitled to appropriate deference from this Court. See Chevron
U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837
(1984). In Chevron, the U.S. Supreme Court stated: “Such
legislative regulations are given controlling weight unless they
are arbitrary, capricious, or manifestly contrary to the
statute.” Id. at 844. We have previously held that section
1.469-2(f)(6), Income Tax Regs., is not arbitrary, capricious, or
manifestly contrary to section 469(l)(2). Krukowski v.
Commissioner, 114 T.C. 366 (2000), affd. 279 F.3d 547 (7th Cir.
2002); Shaw v. Commissioner, T.C. Memo. 2002-35; Sidell v.
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