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attribute of petitioner that passed to the Benton estate at the
time of the bankruptcy petition. See secs. 469(b), 1398(g). By
statutory definition, a “passive activity deduction” does not
include a loss or deduction that is carried to the taxable year
under section 172(a). See sec. 469(a) and (b); cf. sec. 1.469-
2T(d)(2)(ix), Temporary Income Tax Regs., 57 Fed. Reg. 20758 (May
15, 1992) (referring to and incorporating rules found in sec.
1.469-2(d)(2)(ix), Income Tax Regs.)
In general, when a taxpayer disposes of an entire interest
in a passive activity to an unrelated person in a fully taxable
transaction, all passive losses from the activity, both suspended
and current, are deductible from the taxpayer’s income whether
passive or nonpassive. The loss available upon that type of
disposition is no longer treated as passive to the extent of:
(1) Any loss from the activity for the tax year (including any
losses suspended in prior years), over (2) any net income or gain
for the tax year from all other passive activities (determined
after application of any losses suspended in prior years). Sec.
469(g)(1)(A). Hence only upon the Benton estate’s transfer of
its interest in a passive activity to the liquidating trustee–-a
transfer deemed a taxable disposition by reason of the
settlement--would any suspended passive loss from that activity,
pursuant to section 469(g)(1)(A), qualify as a generally
deductible nonpassive loss. Id.; sec. 1.469-2T(d)(2)(v),
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