Can an individual deduct interest paid on a business-related tax deficiency?

EXECUTIVE SUMMARY

Currently, there is dissension in the courts as to whether interest paid by an individual on a tax deficiency can qualify as deductible trade or business interest. According to Temp. Regs. Sec. 1.163-9T(b) (2) (i) (A), which is predicated on the Blue Book to the Tax Reform Act of 1986 (TRA '86), such interest is nondeductible personal interest; however, the TRA '86 Conference Report states that personal interest generally includes interest on tax deficiencies, not that interest on all tax deficiencies is personal interest. A recent Tax Court case, Redlark, invalidated the temporary regulation, in conflict with Miller, a decision of the Eighth Circuit holding the regulation valid. This article examines the deductibility of such interest and how much deference the Blue Book is to be given in making this determination.

Introduction.

The Tax Reform Act of 1986 (TRA '86), Section 511, significantly restricted an individual's ability to deduct interest; after 1986, an interest expenditure must be classified in one of six categories under Sec. 163, based on the use of the underlying debt: trade or business, passive activity, investment, qualified residence, personal and tax-exempt. Each category has its own rules; the most generous allow full deductibility (trade or business interest) and the least bar deductibility (personal interest). Thus, the proper categorization of interest has become more important, complex and controversial. One such controversy involves an individual paying interest on a tax deficiency related to an audit of either his business activity or his interest in a passthrough entity (i.e., partnership, limited liability company or S corporation). This article examines the deductibility of tax deficiency interest on Schedule C, E and F business activities, then extends the analysis to interests held in passthrough entities.

Deducting Tax Deficiency Interest

Post-TRA '86 Sec. 163(h) (1) provides that no deduction is allowed an individual for "personal interest"; Sec. 163(h) (2) defines personal interest as other than interest paid or accured on debt properly allocable to a trade or business, any investment interest, any passive activity interest and any qualified residence interest. Temp. Regs. Sec. 1.163-9T, issued in 1987, ostensibly implements Sec. 163(h) (2); under Temp. Regs. Sec. 1.163-9T(b) (2) (i) (A), personal interest includes interest paid on underpayments of individual income taxes and on debt used to pay such taxes, regardless of the source of the income generating the tax liability. Thus, the temporary regulation disallows the deduction of interest paid on individual income tax deficiencies, even if the income is trade or business related.

Several recent cases(1) have addressed the deductibility of tax deficiency interest arising from an IRS adjustment of trade or business income. Prior to 1987, the courts consistently held that a noncorporate taxpayer could deduct tax deficiency interest arising from business income in computing adjusted gross income (AGI) under Sec. 62(a) (1).(2) The courts also held that the interest was deductible under Sec. 162 as a trade or business expense. If valid, Temp. Regs. Sec. 1.163-9T(b) (2) (i) (A) would overturn long-standing case law in this area. Since 1986, the courts appear to be divided; the decisions hinge on the type of entity used to conduct the trade or business and the court in which the case was tried.

Miller: Temp. Reg. Is Valid

In Miller,(3) the taxpayer was assessed a deficiency arising from adjustments to his 1982 and 1983 farming business income. The IRS disallowed a deduction for interest paid and deducted in 1988 related to those deficiencies, under Temp. Regs. Sec. 1.163-9T(b) (2) (i) (A). The district court held that regulation to be invalid because it provided that interest paid on an underpayment of noncorporate income tax was per se nondeductible. According to the court, Sec. 163(h) (2) (A) specifically excludes from "personal interest" any interest allocable to a trade or business. The court found that the principal purpose in enacting Sec. 163(h) (2) (A) was to disallow a noncorporate taxpayer's deduction of nonbusiness interest. According to the TRA '86 Conference Report,(4) Congress did not intend to change prior case law holding deductible deficiency interest incurred in connection with the conduct of a trade or business. In the court's view, the inclusion in "personal interest" of interest on deficiencies derived from business income was overly broad. The court also noted that, according to the Conference Report, personal interest generally includes interest on tax deficiencies; however, nothing in the report indicated that Congress believed interest on all tax deficiencies to be personal interest.

The IRS argued that, under the General Explanation of the Tax Reform Act of 1986 ("Blue Book"), personal interest includes interest on underpayments of individual income taxes, regardless of whether the income arose from a trade or business, because such taxes are not considered derived from the conduct of a trade or business.(5) Because the Blue Book was not prepared until a year after the TRA '86 was enacted, the district court found that such post-enactment explanation did not reach the level of legislative history and, therefore, was not authority. The court held the regulation to be invalid and ordered further discovery to determine whether the interest was an ordinary and necessary business expense.

On rehearing, the district court disallowed the deduction for the tax deficiency interest on the grounds that it was not an ordinary and necessary business expense. In the court's view, the taxpayer operated an improper deferral scheme to postpone the reporting of substantial amounts of taxable income. Nevertheless, the district court maintained that Temp. Regs. Sec. 1.163-9T(b) (2) (i) (A) was invalid; the Eighth Circuit affirmed the decision in Miller, but held that the temporary regulation was valid and thus, dispositive of the interest deduction issue.

Return Positions Contrary to Regulations

Taking a return position contrary to a temporary regulation is generally not advisable. Regs. Sec. 1.6662-3(c) (2) requires a taxpayer taking a return position in disregard of a regulation to file with the return Form 8275-R, Regulation Disclosure Statement. While filing this form could lead to an audit, there have been several instances in which an interpretative temporary or final regulation has been held invalid because it did not reflect Congress's legislative intent. (An interpretative regulation is one promulgated pursuant to the general authority granted to the Treasury Secretary under Sec. 7805(a) and not pursuant to specific legislative authority.) For example, in Vogel Fertilizer,(6) the Supreme Court ruled that Regs. Sec. 1.1563-1(a) (3), an interpretative regulation, was invalid because it was not a reasonable interpretation of Sec. 1563, as indicated by the statute's language, structure and legislative history. The Court stated that even though the IRS has general authority to issue all needful rules and regulations, an interpretative regulation is owed less deference than is a statutory regulation (i.e., a regulation issued under a specific grant of authority to define a statutory term).

The district courts have also addressed the validity of regulations. In Lovett,(7) the Court of Claims ruled that Regs. Sec. 1.951-3 was contrary to the plain meaning of the statute and congressional intent. The court stated that the IRS did not have the power to make law; rather, its responsibility is to carry out the will of Congress and it cannot amend a statute by issuing a regulation. In Philadelphia Electric,(8) the Court of Claims stated that a regulation has the force and effect of law only when it is reasonably designed to carry out the intent of Congress, but it cannot add a condition Congress did not impose. In Caterpillar Tractor,(9) the Court of Claims ruled that interpretative regulations are not law, but are simply the interpretation of statutes previously enacted. According to the court, the regulation at issue was invalid because it was not in harmony with the intent of the statute and contradicted its express terms. The court reiterated that regulations cannot supply an omission or create an exception not already in the statute.

Thus, there is substantial precedent at both the Tax Court and district court levels to take a tax deficiency interest position contrary to Temp. Regs. Sec. 1.163-9T(b) (2) (i) (A), especially since it is heavily predicated on a Blue Book issued more than a year after the enactment of the TRA '86. In a related issue on investment interest, the Ninth Circuit ruled that the "Blue Book is not properly characterized as legislative history because it was written after passage of the legislation and therefore did not inform the decisions of the members of Congress who voted in favor of" it.(10) Thus, in determining the validity of Temp. Regs. Sec. 1.163-9T(b) (2) (i) (A), the issue is the relative authority of the Blue Book.

Blue Book's Authority

The Blue Book's relative authority has been subject to various comments by the courts and Treasury. Notice 90-20(11) discusses substantial authority for purposes of Sec. 6662(d) (2) (B) (i) and implies that there are three levels of authority: (1) the Code and other statutory provisions, temporary and final regulations construing such statutes, court cases, administrative pronouncements, treaties, joint committee pronouncements and statements of managers; (2) proposed regulations, the Blue Book, press releases, notices and announcements; (3) letter rulings, technical advice memoranda (TAMs) and AODs. Letter Ruling (TAM) 9452005(12) states that the Blue Book "does not technically rise to the level of legislative history because it is authored by congressional staff and not by Congress." Est. of Hutchinson(13) discussed the General Explanation of the Tax Reform Act of 1976 and suggested that it should be given weight when supported by other indications of legislative intent. Similarly, in Rivera,(14) the Tax Court stated that the Blue Book (on the Economic Recovery Tax Act of 1981) is entitled to great respect, but does not technically rise to the level of legislative history.

However, Simon(15) essentially ignored the Blue Book, and Sharp(16) stated that General Explanations are not legislative history and are "utterly insignificant" because they are written so long after the enactment of the law. Slaven v. BP America,(17) a nontax case, states that after-the-fact legislative observations are not part of the legislative history. McDonald(18) states that the General Explanation of the Tax Reform Act of 1969 does not directly represent the views of the legislators or an explanation available to them.

Redlark: Temp. Reg. Is Invalid

The Tax Court recently opined on the tax deficiency interest deduction issue in Redlark,(19) in which a deficiency was assessed from adjustments stemming from accounting errors related to the taxpayers' unincorporated business. In 1989 and 1990, the taxpayers paid the deficiency and paid and deducted the related interest. The IRS disallowed the interest deduction as personal interest under Temp. Regs. Sec. 1.163-9T(b) (2) (i) (A). Unlike the Eighth Circuit in Miller, a sharply divided Tax Court held for the taxpayer; like the district court, the Tax Court ruled that Temp. Regs. Sec. 1.163-9T(b) (2) (i) (A) was invalid. If appealed (which is likely), the Redlark case will be heard by the Ninth Circuit.

The Redlark court used reasoning similar to that used in the pre-rehearing Miller decision. The Tax Court looked at the Conference Report, which stated that interest on tax deficiencies would generally be personal in nature, but would not include interest incurred or continued in connection with a trade or business. The court reasoned that "generally" signals that not all interest on income tax deficiencies is personal interest; interest that constitutes an ordinary and necessary business expense is excluded from personal interest and is trade or business interest. The court also stated that when there is no corroboration in the actual legislative history, the General Explanation (i.e., Blue Book) should be disregarded, as far as congressional intent is concerned.

Based on this reasoning and the holdings of prior cases, the Tax Court ruled that Temp. Regs. Sec. 1.163-9T (b) (2) (i) (A) was invalid and that the interest the Redlarks paid on the tax deficiency was properly deductible as a trade or business expense under Sec. 162. The court further stated that Treasury should not be able to construct a formula excluding an entire category of interest expense in disregard of a business connection, such as Temp. Regs. Sec. 1.163-9T (b) (2) (i) (A); to do so would result in discrimination against an individual who operated his business as a proprietorship instead of as a corporation.

Based on Redlark and Miller, it appears the deductibility of interest on a tax deficiency resulting from adjustments to business income depends on the court in which the case is tried. Both before and after the TRA '86, the Tax Court held such interest to be deductible,(20) while the Eighth Circuit jurisdictions other than the Eighth Circuit should consider taking a case involving the deduction of interest on a tax deficiency to the Tax Court or to a district court. However, for taxpayers living in the Eighth Circuit, the best alternative would be the Court of Federal Claims, because the Golsen(21) rule does not apply to that court. As noted earlier, if a taxpayer files a return taking a position contrary to a temporary regulation, Form 8275-R must accompany the return. But must the form be filed if the position disregards a temporary regulation ruled invalid by a court? Taxpayers in all but the Eighth Circuit may want to consider whether it is necessary to include Form 8275-R with the tax return, to take the same position as did the taxpayers in Miller and Redlark.

Deficiencies Related to Passthrough Entities

Another case addressing interest on tax deficiencies is True,(22) in which an individual and his two sons operated various active businesses (oil and gas, trucking, cattle ranch, etc.) via partnerships and S corporations. The IRS adjusted the business income reported by the various partnerships and S corporations and assessed additional tax. The taxpayers paid the tax deficiency and its related interest, then deducted the interest on their respective Schedules E. The IRS asserted that the interest was nondeductible because it was not paid or incurred in connection with a business the tax-payers carried on as individuals; instead, the interest was attributable to entities separate and distinct from the taxpayers. Because the entities themselves were under no obligation to pay taxes or interest, they could not deduct the interest either. Instead, the IRS allowed the interest to be deducted as investment interest to the extent of net investment income (for pre-1987 tax years, this was subject to alternative minimum tax disallowance).

Both the district court and the Tenth Circuit in True held for the IRS, on the grounds that the interest was not incurred in the trade or business of the individual taxpayers. To make this determination, the courts had to determine whether the proper classification of each item of income or loss attributable to the taxpayers' business was properly made at the "entity" (i.e., partner or shareholder) level. The courts concluded that the entity approach was appropriate; thus, the interest was not a trade or business expense of the individual taxpayer.

The district court noted that this conclusion was logically unsatisfactory and observed that prior cases(23) in the same circuit had allowed the deduction of interest on a tax deficiency arising from a sole proprietorship as an ordinary and necessary business expense, while such deduction was denied for partnership or S corporation activities. The Tenth Circuit commented that that in this instance, the taxpayers had to endure the consequences of their choice of business form. This result seems to contradict the Redlark court's reasoning that lack of a deduction for individuals is discriminatory. To be fair to all taxpayers, interest paid on a tax deficiency arising from any trade or business activity should be deductible.

Aggregate vs. Entity Theory

While the courts in True relied on the entity theory, both the entity theory and the aggregate (conduit) approach apply to partnerships. The legislative history of subchapter K provides that the use of the entity concept is the proper approach in the treatment of certain specified transactions between a partnership and a partner, but for other Code purposes, the appropriate treatment of a partnership is that of a collection of individuals.(24)

The entity concept is embodied in Sec. 703(b) (addressing the making of certain elections) and Sec. 707 (discussing the treatment of a partnership and a partner acting in a nonpartner role). The aggregate approach is embodied in Secs. 701 and 702 (dealing with the passthrough of amounts and character of income from a partnership to a partner acting in his capacity as a partner).(25) The latter relationship is the situation presented in True; thus, the aggregate concept, not the entity theory, appears to be the appropriate principle to apply.

In True, the IRS asserted that interest paid by a partner cannot be a business expense because the partner is not in a trade or business, and that, because of the entity theory, the partnership's trade or business is not attributable to the partners. However, Sec. 701 itself rebuts the IRS's argument, stating in part that "[p] ersons carrying on business as partners shall be liable for income tax only in their separate or individual capacities." Sec. 702 (b) reinforces the appropriateness of the aggregate concept; according to that section, the tax law treats the character of income recognized by the partner "as if such item were realized directly from the source from which realized by the partnership, or incurred in the same manner as incurred by the partnership." This statement clearly embodies the legislative intent that a partnership is simply a collection of individuals.

Use of Aggregate Theory

The IRS has asserted the aggregate concept in many situations.(26) For example, in a letter ruling,(27) the IRS stated that "...the tax design of the 1939 and 1954 Codes has not altered the fundamental concept that the members of the firm (whether they be general or limited partners) jointly own all the firm assets."

Further, in several recent regulations projects, the IRS has invoked the aggregate concept to deal with partners and partnerships, and shareholders and S corporations. For example, Sec. 179 (b) (3) (A) limits the amount that can be expensed at the partner level to the aggregate amount of taxable income of the taxpayer for such tax year derived from the active conduct by the taxpayer of any trade or business during such tax year. Regs. Sec. 1.179-2 (c) (2) (v) provides that a partner who is engaged in the active conduct of at least one of the partnership's trades or businesses includes in trade or business income his allocable share of taxable income derived from the partnership's active conduct of any trade or business. Regs. Sec. 1.179-2 (c) (6) (i) states that "trade or business" has the same meaning as in Sec. 162; further, under Regs. Sec. 1.179-2 (c) (6) (ii), a partner is actively conducting a "trade or business of the partnership if the partner meaningfully participates in the management or operations of the trade or business." This position is clearly consistent with the notion that partners are conducting the trade or business of the partnership and is contrary to the position taken by the IRS and the courts in True.

It might be argued that determining a tax liability is not part of the trade or business; however, Rev. Rul. 92-29(28) and Standing(29) hold otherwise. Further, in Kornhauser,(30) the Supreme Court held that, just as expenses incurred to earn income are deductible as ordinary and necessary trade or business expenses, so are expenses incurred to earn income are deductible as ordinary and necessary trade or business expenses, so are expenses incurred to retain income. In that case, the expenditures were incurred by a partner in a dispute over the correct partnership income amount. This long-standing Supreme Court case, which was heavily relied on in Standing, implicitly used the aggregate concept.

In Temp. Regs. Sec. 1.163-8T (n) (3) (i), Treasury has taken the position that interest incurred by a taxpayer to buy or carry a partnership or S corporation interest is a business interest expense if the taxpayer materially participates in the activity and the passthrough entity's assets are used solely in a trade or business. That regulation provides a transition rule for debt outstanding on Dec. 31, 1986 attributable to a business activity, and includes in the definition of "business activity" an individual taxpayer's, a partner's or an S shareholder's share of business or profession income properly reported on Schedule E. This is consistent with the taxpayers' position in True and is contrary to the position of the IRS.

In addition, in Notices 88-20(31) and 88-37,(32) the IRS provided guidance on the allocation of interest expense in connection with certain transactions involving partnerships and S corporations. According to Notice 88-20, in debt-financed acquisitions of pass-through entities, the debt proceeds and the associated interest are to be allocated among the assets of the entity using any reasonable method. Thus, any interest allocated to assets used by the passthrough entity in the conduct of a trade or business should be classified as trade or business interests by the individual partners or shareholders. According to Notice 88-37, interest categorized as trade business interest is fully deductible and should be reported on the partner's or shareholder's Schedule E. This treatment of interest is consistent with the aggregate concept and is contrary to the IRS position concerning interest on a tax deficiency created by an adjustment of income from a passthrough entity.

In a Technical Memorandum,(33) Treasury issued a notice of proposed rulemaking with respect to 1954 Code Secs. 56-58,(34) discussing the treatment of partners and S shareholders with regard to the excess investment interest preference for minimum tax purposes. The Memorandum states that "the regulations disregard the existence of (S corporation and partnership) entities and treat the shareholders as though they engaged in the activities of the corporation or partnership directly." Further, the partner or shareholder is treated in all respects as though he owned the business or investment property directly. The notice goes on to say that Treasury considered (but ultimately rejected) the entity approach. The aggregate approach previously discussed manifested itself in Prop. Regs. Sec. 1.57-2 (b). Although that regulation does not apply after 1972, in several post-1972 rulings, the IRS looked to it for guidance.(35)

The Code applies the aggregate concept to passthrough entities in the self-employment (SE) tax area and under the Sec. 1374 built-in gains tax. Under Sec. 1402(a), a distributive share of income from any trade or business carried on by a partnership of which the taxpayer is a member is subject to SE tax. Under Sec. 1402 (c), "trade or business" has the same meaning as in Sec. 162 (with several exceptions not relevant here). Thus, a partner is deemed to be in the same trade or business as that conducted by the partnership. If a partner is deemed to be in the same trade or business as his partnership for SE tax purposes, so should he be for purposes of interest on a tax deficiency attributable to a partnership or S corporation audit.

Regs. Sec. 1.1374-4 (i) (1) provides that if an S corporation owns a partnership interest with built-in gain, it must look through the partnership interest to the individual assets to determine the gain or loss; the partnership assets are treated as if owned directly by the S corporation.

Conclusion

The Tax Court and a district court both hold that interest paid by an individual on a business tax deficiency incurred in a Schedule C, E or F activity is clearly deductible as business interest, despite a contrary temporary regulation based largely on the Blue Book. Only the Eighth Circuit has upheld the validity of Temp. Regs. Sec. 1.163-9T.

A less settled area is the interest expense attributable to a passthrough entity's tax deficiency. Looking at the statute and the IRS's position on the interplay of a materially participating partner or shareholder and its passthrough entity, it would seem that the aggregate concept should apply, and that the entity's trade or business should be deemed the partner's/shareholder's trade or business; thus, interest paid on a tax deficiency arising from adjustments to a partnership's or S corporation's business income should be deductible by the individual taxpayer as an ordinary and necessary business expense; however, this may be viewed by the IRS as a position contrary to a temporary regulation, and clearly is contrary to True. While there is substantial authority in Sec. 163 and long-standing cases, a Form 8275-R should be filed with the return if this position is taken.

(1) James E. Redlark, 106 TC No. 2 (1996) (see Tax Clinic, "Tax Court Allows Deduction for Interest on Tax Deficiency," 27 The Tax Adviser 212 (Apr. 1996)); David Miller, 841 F Supp 305 (DC N.D. 1993) (72 AFTR2d 93-6017, 93-2 USTC [paragraph]50,631), on reh'g, DC N.D., 1994 (76 AFTR2d 95-5162, 95-1 USTC [paragraph]50,068), aff'd, 65 F3d 687 (8th Cir. 1995) (76 AFTR2d 95-6193, 95-2 USTC [paragraph]50,485); H.A. True, Jr., DC Wyo., 1993 (72 AFTR2d 93-5660, 93-2 USTC[paragraph]50,461), aff'd per curiam without published opinion, 35 F3d 574 (10th Cir. 1994); see also Ray V. Rose, TC Memo 1995-75, Holmes F. Crouch, TC Memo 1995-289, and James W. Tippin, 104 TC 518 (1995).

(2) See James J. Standing, 28 TC 789 (1957), aff'd, 259 F2d 450 (4th Cir. 1958) (2 AFTR2d 5850, 58-2 USTC [paragraph]9835), acq., Action on Decision (AOD) 1992-14 (5/18/92); Frank Polk, 31 TC 412 (1958), aff'd, 276 F2d 601 (10th Cir. 1960) (5 AFTR2d 1243, 60-1 USTC [paragraph]9398); Elmer Reise, 35 TC571 (1961), aff'd, 299 F2d 380 (7th Cir. 1962) (9 AFTR2d 887, 62-1 USTC [paragraph]9295). In AOD 1992-14, the IRS acquiesced in Standing as to the deduction of legal and accounting fees incurred in settling a tax deficiency resulting from proposed increases in a taxpayer's business income. The IRS agreed that such expenses are deductible under Sec. 162(a) in determining AGI, but was silent as to the deductibility of interest expense on business tax deficiencies. Based on the AOD's reasoning, it appears that interest paid on such a deficiency should also be classified as a Sec. 162(a) trade or business expense. Rev. Rul. 92-29, 1992-1 CB 20, modifying Rev. Rul. 70-40, 1970-1 CB 50 (issued in the same year as the AOD), ruled that accounting and other fees related to return preparation and resolution of asserted tax deficiencies stemming from business income reported on Schedule C, E or F were deductible under Sec. 162(a) in determining AGI.

(3) Miller, note 1.

(4) H. Rep. No. 99-841, 99th Cong., 2d Sess. II-154 (1986).

(5) Staff of the Joint Committee on Taxation, General Explanation of the Tax Reform Act of 1986, 99th Cong., 2d Sess., p. 266 and n. 60 (Comm. Print 1987).

(6) Vogel Fertilizer Co., 455 US 16 (1982) (49 AFTR2d 82-491, 82-1 USTC [paragraph]9134).

(7) Est. of W.R. Lovett, 621 F2d 1130 (Ct. Cl. 1980) (45 AFTR2d 80-1664, 80-1 USTC [paragraph]9432).

(8) Philadelphia Electric Co., 117 F Supp 424 (Ct. Cl. 1954) (45 AFTR2d 78-572, 54-1 USTC [paragraph]9146).

(9) Caterpillar Tractor Co., 589 F2d 1040 (Ct. Cl. 1978) (42 AFTR2d 6354, 79-1 USTC [paragraph]9112).

(10) James J. Flood, 33 F3d 1174 (9th Cir. 1994) (74 AFTR2d 94-6122, 94-2 USTC [paragraph]50,454), aff'g 845 F Supp 1367 (DC Alaska 1993) (76 AFTR2d 95-7554, 94-1 USTC [paragraph]50,259) (referring to the Blue Book on the Tax Reform Act of 1969).

(11) Notice 90-20, 1990-1 CB 328.

(12) IRS Letter Ruling (TAM) 9452005 (9/9/94).

(13) Est. of Russell E. Hutchinson, 765 F2d 665 (7th Cir. 1985) (56 AFTR2d 85-6498, 85-2 USTC [paragraph]13,624), aff'g TC Memo 1984-55.

(14) Maria Rivera, 89 TC 343, 349, n. 7 (1987).

(15) Richard L. Simon, 103 TC 247 (1994), aff'd, 68 F3d 41 (2d Cir. 1995) (76 AFTR2d 95-6911, 95-2 USTC [paragraph]50,552) (holding antique violin bows to be depreciable).

(16) Jeffrey G. Sharp, 27 Fed. Cl. 52 (Cls. Ct. 1992) (70 AFTR2d 92-6040, 92-2 USTC [paragraph]50,561), aff'd, 14 F3d 583 (Fed. Cir. 1994) (73 AFTR2d 94-511, 94-1 USTC [paragraph]50,001).

(17) Slaven v. BP America, 973 F2d 1468 (9th Cir. 1992), citing Oscar Mayer & Co. v. Evans, 441 US 750, 758 (1979).

(18) Jackie L. McDonald, TC Memo 1983-197, aff'd, 764 F2d 322, n. 25 (5th Cir. 1985) (56 AFTR2d 85-5318, 85-2 USTC [paragraph]9494).

(19) Redlark, note 1.

(20) Id.; Standing, note 2; Polk, note 2; Reise, note 2.

(21) The Golsen rule is that the Tax Court is bound to follow an on-point decision of the U.S. Court of Appeals to which an appeal would lie; see Jack E. Golsen, 54 TC 742 (1970), aff'd on another issue, 445 F2d 985 (10th Cir. 1971) (27 AFTR2d 71-1583, 71-2 USTC [paragraph]9497), cert. denied.

(22) True, note 1.

(23) See, e.g., Polk, note 2.

(24) See H. Rep. No. 83-1337, 83d Cong., 2d Sess. 65 (1954); Holiday Village Shopping Center, 5 Cl. Ct. 566 (1984) (54 AFTR2d 84-5310, 84-2 USTC [paragraph]9549), aff d, 773 F2d 276 (Fed Cir. 1985) (56 AFTR2d 85-5749, 85-2 USTC [paragraph]9649); in that case, the Claims Court noted a statement in the legislative history of subchapter K: "No inference is intended, however, that a partnership is to be considered as a separate entity for the purpose of applying other provisions of the internal revenue laws if the concept of the partnership as a collection of individuals is more appropriate for such provisions" (84-2 USTC 84,582).

(25) Sec. 1366, which applies to S corporations, also adopts the aggregate approach as to amounts and character of income.

(26) See, e.g., Petroleum Corp. of Texas, Inc., 939 F2d 1165 (5th Cir. 1991) (68 AFTR2d 91-5440, 91-2 USTC [paragraph]50,417); Holiday Village Shopping Center, note 24; GCMs 34001 (12/23/69), 36272 (5/1/75) and 38557 (11/3/80).

(27) IRS Letter Ruling 6005174960A (5/17/60).

(28) Rev. Rul. 92-29, note 2.

(29) Standing, note 2.

(30) Samuel J. Karnhauser, 276 US 145 (1928) (6 AFTR 7358, 1 USTC [paragraph]284).

(31) Notice 88-20, 1988-1 CB 487.

(32) Notice 88-37, 1988-1 CB 522.

(33) 1970 TM Lexis 4 (12/1/70), pp. 39-41.

(34) Enacted by TRA '69 Section 301.

(35) See, e.g., IRS Letter Ruling (TAM) 8235004 (5/21/82), discussing Sec. 163 (d).