ÿWPCN =±ú £ª2J“E"/tJrEú £ªa%.#iþ@7ª;÷áè…n¤Ä ‡/öÉcBJ×^3¡4 è£éùÏÂ`üÎ[~ŠrH"i‹'¥¶áa”¶KŸàM ¯³R•óÄqsÃ.Â8—ÇÉPHOŒÐà!‚$•øÞÃåqZ|ðMùŸ&]ªåÐ;Hßqk‰{ð)Ü,œƒì>\æW7ãÓV0}`ì6:[œ@,‘C+•)åÌ`æÑøšcçâC2IS|K¯[ùà$!„«Ë:k¦µ»SÜaùTêõ À1¼A?Gô^NŽòÛÜ.Gß¾ø««K_›h«Éð˜D»5i×akB n¸Içð– Rõ£¾™ÙL”Îrr¹Ã—¯=~ä ñvt›:qxUFéN///// B1˜HP LaserJet 4 LOCAL,ü,,,,,ü0X(#Ã$òòÚ  Ú0Ú  Úóó($¡¡ (d:2SZ$¤¤Ý ƒ!ÝÝ  ÝÓ  ÓÓ=€¸ŠXÐXdÐd=Óà  àÓÓòòÚ  Ú0Ú  Úóó +Ý ƒ#Ú$ÝÓ  ÓÓ=€‡XÐXdÐd=Óà  àÓÓòòÚ  Ú1Ú  ÚóóÝ  ÝÔ_ÔSidell's€acquisition€of€the€Everett€Mill€and€his€subsequentÐ ° Ðacquisition€of€the€Kunhardt€Mill,€discussed€òòinfraóó,€were€bothÐ „Ô Ðaccomplished€through€nominee€trusts€of€which€he€was€the€soleÏbeneficiary.€€Because€no€one€asserts€that€the€trusts€haveÏindependent€significance€for€tax€purposes,€we€treat€the€propertiesÏas€owned€outright€by€Sidell. 7Ý ƒ#Ú$ÝÓ  ÓÓ=€‡XÐXdÐd=Óà  àÓÓòòÚ  Ú2Ú  ÚóóÝ  ÝÔ_ÔFor€his€part,€the€Commissioner€deems€the€internal€IRSÐ ° Ðmemoranda€consistent€with€the€agency's€interpretation€of€theÏproposed€regulations€and,€in€all€events,€conceptualizes€them€asÏforming€part€of€the€agency's€deliberative€process.€€Because€theÏdocuments€are€irrelevant,€òòseeóó€text€òòinfraóó,€we€need€not€evaluate€theÐ P Ðbona€fides€of€these€assertions. gÝ ƒ#Ú$ÝÓ  ÓÓ=€‡XÐXdÐd=Óà  àÓÓòòÚ  Ú3Ú  ÚóóÝ  ÝÔ_ÔThe€need€for€this€descriptive€detail€adequately€evinces€why,Ð ° Ðin€the€view€of€many€Americans,€the€Internal€Revenue€Code€is€thoughtÏto€have€become€an€impenetrable€maze. ™6)Æ I EJ K DL DM N DO P Ó€Q R €äŠ2)6XSHARED0&…- ù-3|xR ÿU‹ÿÀÀÀøÀTABLE A¤.Courier New Regular gÝ ƒóG$ÝÓ=€Ç—XÐXdÐd=ÓÓ  Óà  àÓÓòòÚ  Ú3Ú  ÚóóÝ  ÝÔ_ÔThe€need€for€this€descriptive€detail€adequately€evinces€why,Ð ° Ðin€the€view€of€many€Americans,€the€Internal€Revenue€Code€is€thoughtÏto€have€become€an€impenetrable€maze. 7Ý ƒóG$ÝÓ=€Ç—XÐXdÐd=ÓÓ  Óà  àÓÓòòÚ  Ú2Ú  ÚóóÝ  ÝÔ_ÔFor€his€part,€the€Commissioner€deems€the€internal€IRSÐ ° Ðmemoranda€consistent€with€the€agency's€interpretation€of€theÏproposed€regulations€and,€in€all€events,€conceptualizes€them€asÏforming€part€of€the€agency's€deliberative€process.€€Because€theÏdocuments€are€irrelevant,€òòseeóó€text€òòinfraóó,€we€need€not€evaluate€theÐ P Ðbona€fides€of€these€assertions.<¾½Q 9Z+‹.Courier New Regular¤.Courier New Regular¤.Courier New Regular 7Ý ƒóG$ÝÓ=€Ç—XÐXdÐd=ÓÓ  Óà  àÓÓòòÚ  Ú2Ú  ÚóóÝ  ÝÔ_ÔFor€his€part,€the€Commissioner€deems€the€internal€IRSÐ ° Ðmemoranda€consistent€with€the€agency's€interpretation€of€theÏproposed€regulations€and,€in€all€events,€conceptualizes€them€asÏforming€part€of€the€agency's€deliberative€process.€€Because€theÏdocuments€are€irrelevant,€òòseeóó€text€òòinfraóó,€we€need€not€evaluate€theÐ P Ðbona€fides€of€these€assertions.¤.Courier New Regular +Ý ƒóG$ÝÓ=€Ç—XÐXdÐd=ÓÓ  Óà  àÓÓòòÚ  Ú1Ú  ÚóóÝ  ÝÔ_ÔSidell's€acquisition€of€the€Everett€Mill€and€his€subsequentÐ ° Ðacquisition€of€the€Kunhardt€Mill,€discussed€òòinfraóó,€were€bothÐ „Ô Ðaccomplished€through€nominee€trusts€of€which€he€was€the€soleÏbeneficiary.€€Because€no€one€asserts€that€the€trusts€haveÏindependent€significance€for€tax€purposes,€we€treat€the€propertiesÏas€owned€outright€by€Sidell.¤.Courier New Regular(ÖÃ9 Z6Times New Roman Regular&Courier Regular gÝ ƒóG$ÝÓ=€!Ç—XÐXdÐd=ÓÓ  Óà  àÓÓòòÚ  Ú3Ú  ÚóóÝ  ÝÔ_ÔThe€need€for€this€descriptive€detail€adequately€evinces€why,Ð ° Ðin€the€view€of€many€Americans,€the€Internal€Revenue€Code€is€thoughtÏto€have€become€an€impenetrable€maze.¤.Courier New Regular dÝ ƒ!ÝÝ  ÝÔ_ÔÑTRXà3Ø'Xà3Ø' Letter3Ø' Letterÿ3Ø'TÑÑ ? ÑÙ*ƒ !Ùò òÓ  ÓÓ  ÓÔ‡X¡ÎXXXÔÔ‡°d°XX¡ÎÔUnited€States€Court€of€AppealsÔ#†X¡ÎX°°dä#ÔÐ ° ÐÔ‡„2Ê„XX¡ÎÔFor€the€First€CircuitÔ#†X¡ÎX„„2ÊY#ÔÔ#†XÈÉXXX¡ÎÅ#Ôó óÐ à ÐÓ¹ÓÌÌßA€') °°` dE<£ ` AßÐ ¤ ô ÐÌÌNo.€00„1078ÌÌà@@ @ ìàCHESTER€F.€Ô_ÔSIDELLÔ_Ô€AND€FAYE€L.€Ô_ÔSIDELLÔ_Ô,ˆÌÌà@LLìàPetitioners,€Appellants,ˆÌÌà@tt)ìàv.ˆÌÌà@0 0 ìàCOMMISSIONER€OF€INTERNAL€REVENUE,ˆÌÌà@ ìàRespondent,€Appellee.ˆÌÌßA€') °°` dE<f` AßÐ g· ÐÌà@È È ìàAPPEAL€FROM€THE€UNITED€STATES€TAX€COURTˆÌÌà@ä ä ìà[Hon.€Julian€I.€Jacobs,€òòJudgeóó]ˆÐ øH ÐÌßA€') °°` dE<£` AßÐ ¤ô ÐÌà@„„'ìàBeforeˆÌÌÓ  Óà@@((ìà€Ô_ÔTorruellaÔ_Ô,€òòChief€Judgeóó,Ð 5… ÐÌÔ_ÔSelyaÔ_Ô,€òòCircuit€Judgeóó,Ð á1 ÐÌand€Ô_ÔCasellasÔ_Ô,*€òòDistrict€Judgeóó.Ð Ý! ÐÌßA€') °°` dE<8!` AßÐ 9!‰# ÐÌÓ  ÓÓ  Óà  àòòDavid€R.€Ô_ÔAndelmanÔ_Ôóó,€with€whom€òòJuliette€Ô_ÔGaliciaÔ_Ô€Picoóó€and€òòÔ_ÔLourieÔ_ÔÐ "n% Ð&€Cutler,€P.C.óó€were€on€brief,€for€appellants.Ð ô"D& Ðà  àòòEllen€Page€Ô_ÔDelsoleÔ_Ôóó,€Attorney,€Tax€Division,€U.S.€Ô_ÔDep'tÔ_Ô€ofÐ Ê#' ÐJustice,€with€whom€òòPaula€M.€Ô_ÔJunghansÔ_Ôóó,€Acting€Assistant€AttorneyÐ  $ð( ÐGeneral,€and€òòKenneth€L.€Greenóó,€Attorney,€Tax€Division,€were€onÐ v%Æ ) Ðbrief,€for€appellee.ÌÌÌÔ*‹ƒ'ddd Xdd Xdd X°(#°(#‹ÔÔ,( dd ÔÔ,( dd ÔÔ,( dd ÔÔ+  ÔÐ  Î($- ‹‹ÐÓRÓñR ñÐ SI2)‚$. Àöá@36790„„‰Àöá@‰‹‹SÐñR ññR ñÐ 0&2)‚$. „„‹‹0ÐñR ñÌñQ ñSeptember€22,€2000ñQ ñÌÐ SIDÞ*.&1" Àöá@36790 Àöá@ ‹‹SÐÐ(2)‚$2  (ÐÓ  ÓÙ* !ÙÌÓ  Ó_______________Ì*Of€the€District€of€Puerto€Rico,€sitting€by€designation.Ð  -à(4? ÐÔ_ÔÑ  ÑñP ñÓ=€‡ÐXdÐd=ÓñP ñÓÓÑ8€ºX XdÈXXdÖ8ÑÑ€ ÑÓ*°,X°` ¨ ƒX°œX*Óà ` àò òSELYA,€òòCircuit€Judgeóó.ó ó€€The€Commissioner€of€the€InternalÐ ° ÐRevenue€Service€(IRS)€issued€a€deficiency€notice€to€Mr.€and€Mrs.ÏChester€F.€Sidell€(the€taxpayers)€for€taxes,€interest,€andÏpenalties€allegedly€due€in€respect€to€the€years€1993€and€1994.€€TheÏCommissioner€premised€this€deficiency€determination€on€an€assertionÏthat€the€taxpayers€had€Ô_ÔmisclassifiedÔ_Ô€certain€rental€income€asÏpassive€rather€than€nonpassive.€€Unhappy€with€this€turn€of€events,Ïthe€taxpayers€sought€a€judicial€anodyne.€€The€Tax€Court€sided€withÏthe€Commissioner.€€òòSeeóó€òòSidellóó€v.€òòCommissioneróó,€T.C.€Memo.€1999„301,Ð X  Ð78€T.C.M.€(CCH)€423€(1999).€€The€taxpayers€appeal,€averring€€thatÏthe€Tax€Court€erred€in€accepting€the€Commissioner'sÏÔ_ÔrecharacterizationÔ_Ô€of€their€rental€income,€and€that€in€all€eventsÏthey€should€be€permitted€to€use€credits€for€rehabilitation€ofÏhistoric€property€to€offset€their€income€in€the€years€in€question.€ÏDiscerning€no€error€in€the€Tax€Court's€resolution€of€this€dispute,Ïwe€affirm.Ìò òI.€€BACKGROUNDó óÐ H˜  Ðà ` àThe€relevant€facts€are€straightforward.€€At€the€pertinentÏtimes,€Chester€F.€Sidell€owned€all€the€stock€of€KGR€Industries,€aÏMassachusetts€corporation.€€KGR€operated€as€a€regular€businessÏcorporation€ð"ð€a€so„called€C€corporation€ð"ð€and€itself€paid€taxes.€Ð &P!( ÐòòSeeóó€26€U.S.C.€ðððð€301„385€(subtit.€A,€ch.€1,€Ô_ÔsubchÔ_Ô.€C).ò òó ó€€CÐ ¨'ø"* Ðcorporations€are€different€in€kind€from€entities€that€are€notÏthemselves€taxpayers€but€which€function€as€conduits€for€attributingÐ ø*H&. Ðgains€and€losses€to€their€owners€(e.g.,€partnerships,€òòseeóó€26€U.S.C.Ð ° Ððððð€701„771€(subtit.€A,€ch.€1,€subch.€K),ò òó ó€and€S€corporations,€òòseeóóÐ X¨ Ðòòid.óó€ðððð€1361„1379€(subtit.€A,€ch.€1,€subch.€S)).Ð P Ðà ` àIn€1985,€increased€demand€for€KGR's€private„labelÏclothing€generated€a€need€for€expanded€production€facilities.€ÏSidell€met€this€need€by€purchasing€the€Everett€Mill,€an€historicÏproperty€that€he€refurbished€and€leased€to€KGR.ñP ñ׃×ñP ññP ñ׃×ñP ñÝ ƒ#ÃÝòòÚ  Ú1Ú  ÚóóÝ  Ý×  ×€€He€was€able€toÐ  ð  Ðbenefit€personally€from€this€effort€by€claiming€rehabilitation€taxÏcredits€under€26€U.S.C.€ðð€46(b)(4)(A)€(the€precursor€to€26€U.S.C.Ïðð€47).€€Those€credits€are€not€at€issue€in€this€appeal.Ìà ` àWhen€KGR€continued€to€experience€growing€pains,€SidellÏendeavored€to€replicate€this€serendipitous€scenario.€€In€1992,€heÏpurchased€the€Kunhardt€Mill,€an€historic€property€located€acrossÏthe€street€from€the€Everett€Mill.€€He€structured€this€transactionÏin€nearly€identical€fashion,€beginning€a€qualified€rehabilitationÏimmediately€after€acquisition,€òòseeóó€Secretary€of€the€Interior,Ð ˆØ ÐStandards€for€Rehabilitation,€36€C.F.R.€ðð€67,€and€completing€it€inÏapproximately€one€year's€time.Ìà ` àThe€taxpayers€claimed€rehabilitation€tax€credits€inÏconnection€with€the€Kunhardt€Mill€restoration.€€They€used€thoseÏcredits€(totaling€$85,361€in€1993€and€$24,284€in€1994)€to€offsetÐ Ð% !( Ðrental€income€paid€by€KGR.€€But€the€story€did€not€have€quite€soÏhappy€an€ending€the€second€time€around.€€In€the€Commissioner'sÏview,€the€rehabilitation€tax€credits€could€only€be€used€to€offsetÏpassive€income;€and€under€the€law€applicable€to€the€years€inÏquestion€(1993€and€1994),€the€rental€income€received€from€KGR€wasÏnonpassive.€€Because€the€taxpayers€had€no€other€passive€income€forÏthose€years,€the€Commissioner€disallowed€the€claimed€offsets€andÏasserted€deficiencies€amounting€to€$103,728€for€1993€and€$41,621Ïfor€1994.Ìà ` àDismayed€by€the€Commissioner's€stance,€the€taxpayersÏbrought€suit.€€òòSeeóó€26€U.S.C.€ðððð€6213(a),€6214(a),€7442.€€The€TaxÐ @ ÐCourt€sustained€the€Commissioner's€determination€of€the€existenceÏand€extent€of€the€deficiencies.€€òòSeeóó€òòSidellóó,€T.C.€Memo.€1999„301.€Ð à ÐThis€appeal€followed.Ìò òII.€€ANALYSISó óÐ à0 Ðà ` àIn€this€court,€as€below,€the€taxpayers€advance€threeÏprincipal€lines€of€argument.€€First,€they€maintain€that€theÏregulations,€namely,€Treas.€Reg.€ðð€1.469„2(f)(6)€(1992)€and€Treas.ÏReg.€ðð€1.469„4(a)€(1994),€are€invalid€insofar€as€they€purpose€toÏÔ_ÔrecharacterizeÔ_Ô€income€received€from€closely„held€C€corporations€asÏnonpassive.€€Second,€they€note€that€they€had€completed€the€KunhardtÏMill€rehabilitation€before€October€4,€1994€(the€effective€date€ofÏthe€attribution€rule,€Treas.€Reg.€ðð€1.469„4(a)),€and€they€claimÏthat€certain€transition€rules€apply€(under€which,€in€their€view,Ð à*0&. Ðthe€rent€received€from€KGR€should€be€treated€as€passive€income).€ÏFinally,€the€taxpayers€contend€that€depriving€them€of€the€benefitÏof€the€rehabilitation€tax€credits€for€the€years€in€which€the€workÏwas€performed€not€only€would€flout€the€language€of€26€U.S.C.€ðð€47,Ïbut€also€would€undermine€the€legislative€policy€behind€it.€€We€dealÏwith€each€of€these€asseverations€in€turn.€€As€the€case€wasÏsubmitted€on€a€stipulated€record€and€the€taxpayers€train€their€fireÏon€the€Tax€Court's€legal€determinations,€our€review€is€plenary.€ÏòòSeeóó€òòStricklandóó€v.€òòCommissioner,€Me.€Ô_ÔDep'tÔ_Ô€of€Human€Ô_ÔServsÔ_Ô.óó,€48€F.3dÐ ð@  Ð12,€16€(1st€Cir.€1995).Ìà@  ìàò òA.€€òòValidity€of€the€Final€Regulationsóó.ó óˆÐ @ Ðà ` àThe€regulations€at€issue€ð"ð€Treas.€Reg.€ðð€1.469„2(f)(6)Ïand€Treas.€Reg.€ðð€1.469„4(a)€ð"ð€were€issued€by€the€Secretary€of€theÏTreasury€under€a€specific€grant€of€authority€from€Congress.€€òòSeeóó€ò òó ó26Ð P  ÐU.S.C.€ðð€469(l).€€We€afford€such€legislative€regulations€a€highÏdegree€of€respect:€€an€inquiring€court€must€give€legislativeÏregulations€"controlling€weight€unless€they€are€arbitrary,Ïcapricious,€or€manifestly€contrary€to€the€statute."€€òòChevron€U.S.A.Ð ð @" ÐInc.óó€v.€òòNatural€Resources€Defense€Council,€Inc.óó,€467€U.S.€837,€844Ð ˜"è$ Ð(1984).€€The€upshot€is€that€a€court€should€enforce€such€regulationsÏas€long€as€they€have€a€rational€basis€and€are€reasonably€related€toÏthe€purposes€of€the€enabling€legislation.€€òòSeeóó€òòP.€Ô_ÔGioiosoÔ_Ô€&€Sons,Ð 'à"* ÐInc.óó€v.€òòÔ_ÔOSHRCÔ_Ôóó,€115€F.3d€100,€107€(1st€Cir.€1997).€€Against€thisÐ 8)ˆ$, Ðbackdrop,€the€taxpayers'€claim€of€invalidity€gains€little€traction.Ð à*0&. Ðà ` àThe€starting€point€for€a€reasoned€appraisal€of€that€claimÏis€26€U.S.C.€ðð€469(l),€which€empowers€the€Secretary,€in€relevantÏpart,€toÌÓÓà8 ` àprescribe€such€regulations€as€may€be€necessaryÏor€appropriate€to€carry€out€provisions€ofÏ[Sec.€469],€including€regulations€ð"ð€.€.€.€(3)Ïrequiring€net€income€or€gain€from€a€limitedÏpartnership€or€other€passive€activity€to€beÏtreated€as€not€from€a€passive€activity€.€.€.€.Ð ` x` x ÐÌÓÓThe€taxpayers€suggest€that€Congress,€through€this€language,€onlyÏintended€the€Secretary€to€promulgate€regulations€that€required€netÏpassive€income€derived€from€certain€pass„through€entities,€such€asÏpartnerships€or€S€corporations,€to€be€treated€as€nonpassive.€€TheÏSecretary,€however,€went€further;€after€considerable€backing€andÏfilling,€discussed€òòinfraóó,€he€released€the€final€regulations€here€atÐ ¼  Ðissue.Ìà ` àThe€first€of€these€regulations€ð"ð€embodying€what€isÏsometimes€called€the€"self„rental€rule"€ð"ð€instructs€taxpayers€onÏhow€rental€income€is€to€be€characterized€for€tax€purposes.€€ItÏstates:ÌÓÓà8 ` àAn€amount€of€the€taxpayer's€gross€rentalÏactivity€income€for€the€taxable€year€from€anÏitem€of€property€equal€to€the€net€rentalÏactivity€income€for€the€year€from€that€item€ofÏproperty€is€treated€as€not€from€a€passiveÏactivity€if€the€property€ð"ðÐ ` x` x ÐÌà8 ` àà ¨ à(Ô_ÔiÔ_Ô)€Is€rented€for€use€in€a€trade€orÏbusiness€activity€(within€the€meaning€ofÏparagraph€(e)(2)€of€this€section)€in€which€theÏtaxpayer€materially€participates€(within€theÏmeaning€of€ðð€1.469„5T)€for€the€taxable€year;Ïand€(ii)€Is€not€described€in€ðð€1.469„2T(f)(5).Ð ` x` x ÐÐ p,À'0 ÐÓÓTreas.€Reg.€ðð€1.469„2(f)(6)€(1992).Ìà ` àThe€second€regulation€ð"ð€which€embodies€what€is€sometimesÏcalled€the€"attribution€rule"€ð"ð€reads:ÌÓÓà8 ` àA€taxpayer's€activities€include€thoseÏconducted€through€C€corporations€that€areÏsubject€to€section€469,€S€corporations,€andÏpartnerships.Ð ` x` x ÐÌÓÓTreas.€Reg.€ðð€1.469„4(a)€(1994).€€This€regulation€hardly€could€beÏclearer:€€it€makes€the€self„rental€rule€applicable€to€€transactionsÏbetween€closely„held€C€corporations€and€their€owners.Ìà ` àThe€taxpayers'€argument€on€this€point€Ô_ÔprescindsÔ_Ô€from€theÏuncontroversial€premise€that,€apart€from€persons€whose€primaryÏtrade€or€business€is€real€estate,€a€taxpayer's€receipt€of€rentÏtypically€comprises€passive€income.€€The€Secretary's€newly„devisedÏregulatory€regime€alters€this€treatment€in€a€certain€class€ofÏcases,€and€the€taxpayers€argue€that€Congress€intended€to€limit€theÏSecretary's€power€to€effect€such€alterations€to€activitiesÏconducted€by€pass„through€entities€(like€partnerships€or€SÏcorporations).€€The€ultimate€question,€then,€is€whether€theÏSecretary€had€the€authority€under€section€469(l)€to€stretch€theÏbounds€of€coverage€to€include€income€or€gain€received€from€entitiesÏwhich,€like€C€corporations,€are€not€pass„through€entities.€€WeÏconclude€that€the€Secretary€acted€appropriately€in€setting€theÏparameters€of€the€regulatory€scheme.Ìà ` àThe€authority€given€to€the€Secretary,€as€illustrated€byÏthe€statutory€text,€is€quite€broad.€€The€statute€empowers€him€toÐ œ+ì&/ Ðpromulgate€any€regulations€that€he€deems€"necessary€or€appropriate"Ïto€further€the€goals€of€section€469.€€Importantly,€this€includesÏthe€explicit€power€to€treat€what€normally€would€be€passive€incomeÏas€nonpassive€if€he€believes€that€such€a€shift€is€warranted.€ÏAlthough€the€statute€mentions€limited€partnerships€as€one€possibleÏsubject€of€regulation,€the€category€is€open„ended,€not€closed,€asÏwitness€Congress's€use€of€the€inclusive€phrase€"or€other."€€òòAccordóóÐ  ð  ÐòòFransenóó€v.€òòUnited€Statesóó,€191€F.3d€599,€600„01€(5th€Cir.€1999).€Ð H˜  ÐGiven€the€apparent€breadth€of€authority€ceded€to€the€Secretary,€andÏthe€congruence€between€the€final€regulations€and€the€statute'sÏevident€goal€(eliminating€tax€shelters),€it€is€exceedinglyÏdifficult€to€imagine€how€the€application€of€the€self„rental€rule€toÏshareholders€of€closely„held€C€corporations€(which€the€Tax€CourtÏaccurately€called€the€"epitome"€of€self„renting€transactions,€òòseeóóÐ 8ˆ Ðò òó óòòSidellóó,€T.C.€Memo.€1999„301,€at€20)€can€be€considered€arbitrary,Ð à0 Ðcapricious,€or€contrary€to€Congress's€will.Ìà ` àThe€legislative€history€points€unerringly€in€the€sameÏdirection.€€The€House€Conference€Report€affords€valuable€insightÏinto€the€purposes€behind€the€broad€delegation€of€authority:ÌÓÓà8 ` àThe€conferees€intend€that€this€authority€beÏexercised€to€protect€the€underlying€purpose€ofÏthe€passive€loss€provision,€i.e.,€preventingÏthe€sheltering€of€positive€income€sourcesÏthrough€the€use€of€tax€losses€derived€fromÏpassive€business€activities€.€.€.€.€€ExamplesÏof€where€the€exercise€of€such€authority€may€.Ï.€.€be€appropriate€include€the€following€.€.€.Ï(2)€related€property€leases€or€sub„leases,Ïwith€respect€to€property€used€in€a€businessÏactivity,€that€have€the€effect€of€reducingÐ p,À'0 Ðactive€business€income€and€creating€passiveÏincome€.€.€.€.Ð ` x` x ÐÌÓÓH.€Conf.€Rept.€99„841,€at€147,€òòreprintedóó€òòinóó€1986€U.S.C.C.A.N.€4075,Ð ,| Ð4235.€€This€clear€statement€of€congressional€intent€fits€hand€andÏglove€with€the€expansive€language€of€the€statute€itself.€€One€mayÏquestion€the€wisdom€of€the€policy€choice€embodied€in€the€regulatoryÏscheme,€but€one€hardly€can€question€the€Secretary's€authority€toÏchoose€that€policy.Ìà ` àTo€be€sure,€the€tax€structure€of€a€C€corporation€differsÏfrom€that€of€a€pass„through€entity.€€Despite€this€difference,Ïhowever,€embracing€the€taxpayers'€rationale€would€run€a€grave€riskÏof€contradicting€congressional€intent.€€If€the€recharacterizationÏrules€were€invalidated,€individuals€in€the€Sidells'€position€wouldÏbe€able€to€avoid€application€of€the€self„rental€rule€by€the€simpleÏexpedient€of€structuring€businesses€that€they€controlled€as€CÏcorporations€and€siphoning€off€the€profits€as€rent€(and,€therefore,Ïas€passive€income).€€Insofar€as€the€possibility€of€convertingÏearned€income€into€rental€payments€is€concerned,€the€dangers€ofÏmanipulation€are€essentially€the€same€as€those€that€attend€pass„¼through€entities.€€We€think€it€reasonable€to€assume€that€CongressÏwanted€to€enable€the€Secretary€to€restrict€the€opportunity€for€suchÏmanipulative€behavior€across€the€board.Ìà ` àOur€conclusion€comports€with€that€of€other€courts.€€TheÏFifth€Circuit€has€determined€that€the€attribution€rule,€as€framed,Ïis€a€valid€outgrowth€of€the€Secretary's€power€under€section€469.€Ð œ+ì&/ ÐòòSeeóó€òòFransenóó,€191€F.3d€at€601.€€So€too€the€Tax€Court.€€òòSeeóó€òòKrukowskióóÐ ° Ðv.€òòCommissioneróó,€114€T.C.€No.€25€(2000)€(en€banc)€[2000€U.S.€TaxÐ X¨ ÐCt.€LEXIS€31,€at€*19„ñO ñ*ñO ñ23];€òòò òó óÔ_ÔSchwalbachÔ_Ôóó€v.€òòCommissioneróó,€111€T.C.Ð P Ð215,€220€(1998).€€These€decisions€reinforce€our€conclusion€that€theÏtreasury€regulations€here€at€issue€reflect€a€proper€exercise€of€theÏSecretary's€duly€delegated€authority.€€Hence,€we€reject€theÏtaxpayers'€challenge€to€their€legitimacy.Ìà@  ìàò òB.€€òòApplicability€of€the€Attribution€Ruleóó.ó óˆÐ H˜  Ðà ` àThe€taxpayers€assert€that€even€if€the€final€regulationsÏare€valid€as€applied€to€the€activities€of€closely„held€CÏcorporations,€this€case€avoids€their€grasp.€€Since€this€claimÏdepends€on€timing,€we€limn€the€chronology€of€relevant€events.Ìà ` àIn€the€Tax€Reform€Act€of€1986,€Pub.€L.€No.€99„514,€100ÏStat.€2087€(codified,€as€amended,€in€scattered€sections€of€26ÏU.S.C.),ò òó ó€Congress€sought€to€eliminate€a€host€of€tax€shelters€thatÐ øH Ðsavvy€taxpayers€had€concocted€over€time.€€As€part€of€this€bill,ÏCongress€carefully€distinguished€between€passive€and€nonpassiveÏactivities,€and€provided€that€"any€activity€ð"ð€(A)€which€involvesÏthe€conduct€of€any€trade€or€business,€and€(B)€in€which€the€taxpayerÏdoes€not€materially€participate"€would€be€regarded€as€a€passiveÏactivity.€€26€U.S.C.€ðð€469(c)(1).€€As€previously€noted,€CongressÏauthorized€the€Secretary€of€the€Treasury€to€promulgate€regulationsÏ"which€specify€what€constitutes€.€.€.€material€participation,€orÏactive€participation"€for€this€purpose.€€26€U.S.C.€ðð€469(l)(1).€Ð à*0&. ÐActing€pursuant€to€this€authority,€the€Secretary€released€a€seriesÏof€regulations€designed€to€describe€when€a€taxpayer€was€materiallyÏparticipating€in€a€venture,€such€that€the€rental€income€from€thatÏventure€would€be€treated€as€nonpassive€income.Ìà ` àThe€Secretary's€pronouncements€initially€took€the€form€ofÏtemporary€regulations.€€The€first€set€of€temporary€regulationsò òó óÐ ø H  Ðprovided€that€shareholders€in€non„pass„through€entities,€such€as€CÏcorporations,€were€not€to€be€regarded€as€materially€participatingÏin€the€entity's€activities.€€òòSeeóó€Temp.€Treas.€Reg.€ðð€1.469„5T(f)(1)Ð ð@  Ð(1988).€€The€next€year,€the€Secretary€supplanted€these€regulationsÏwith€another€set€of€temporary€regulations€containing€the€same€safeÏharbor€for€C€corporation€shareholders.€€òòSeeóó€Temp.€Treas.€Reg.€ððÐ è8 Ð1.469„4T(b)(2)(ii)(B)€(1989).€€The€1989€temporary€regulationsÏexpired€in€1992,ò òó ó€and€the€Secretary€replaced€them€with€a€set€ofÐ 8ˆ Ðproposed€regulations.€€òòSeeóó€57€Fed.€Reg.€20,802€(1992).Ð à0 Ðà ` àThese€new€regulations€worked€a€sea€change.€€TheyÏeliminated€most€of€the€specific€benchmarks€that€had€characterizedÏthe€temporary€regulations€and€substituted€a€broad€"totality€of€theÏcircumstances"€approach€for€the€earlier,€essentially€mechanicalÏapproach€used€to€determine€whether€an€owner€participated€materiallyÏin€an€owned€entity's€activities.€€While€the€CommissionerÏsimultaneously€vouchsafed€that€the€self„rental€rule€was€stillÏÔ_ÔvelivolantÔ_Ô,€òòseeóó€Treas.€Reg.€ðð€1.469„2(f)(6)€(1992),€57€Fed.€Reg.Ð  )p$, Ð20,747,€he€omitted€any€further€reference€to€taxpayers€involved€inÏnon„pass„through€entities.€€He€was€similarly€silent€as€to€whetherÐ p,À'0 Ðowners€of€such€entities€would€be€regarded€as€material€participantsÏfor€purposes€of€the€self„rental€rule.Ìà ` àThe€attribution€rule,€contained€in€the€final€regulationsÏissued€by€the€Secretary€in€1994,€closed€the€circle.€€As€notedÏabove,€òòseeóó€òòsupraóó€Part€II(A),€those€regulations€explicitly€statedÐ P   Ðthat€the€self„rental€rule€would€be€applied€to€shareholders€ofÏclosely„held€C€corporations,€and€that€such€shareholders€would€beÏdeemed€to€be€material€participants€in€the€owned€entity'sÏactivities.€€òòSeeóó€Treas.€Reg.€ðð€1.469„4(a)€(1994).€€The€SecretaryÐ ð@  Ðmade€the€final€regulations€retroactive€to€taxable€years€endingÏafter€May€10,€1992.€€òòSeeóó€òòid.óó€ðð€1.469„11(a)(1).€€Apparently€mindful,Ð @ Ðhowever,€that€he€had€erected€something€of€a€moving€target,€he€gaveÏtaxpayers€the€option€of€relying€on€either€the€proposed€regulationsÏor€the€final€regulations€in€figuring€their€taxes€for€tax€years€thatÏboth€ended€after€May€10,€1992,€and€began€before€October€4,€1994.€ò òó óÐ à0 ÐòòSeeóó€òòid.óó€ðð€1.469„11(b)(1).Ð ˆØ Ðà ` àSeizing€on€this€option,€the€taxpayers€claim€that€they€areÏentitled€to€the€largesse€of€the€proposed€regulations,€and€thatÏunder€those€regulations€they€may€treat€the€rental€income€paid€byÏKGR€as€passive.€€The€Commissioner€acknowledges€that,€under€theÏtransition€rules,€the€taxpayers€are€entitled€to€the€benefit€of€theÏproposed€regulations,€but€he€asserts€that€those€regulations€treatÏrental€income€from€closely„held€C€corporations€exactly€the€same€asÏdo€the€final€regulations€(i.e.,€as€nonpassive).€€Like€the€SeventhÏCircuit,€òòseeóó€òòConnoróó€v.€òòCommissioneróó,€218€F.3d€733,€739€(7th€Cir.Ð p,À'0 Ð2000),€we€think€that€the€Commissioner€has€the€better€of€theÏargument.Ìà ` àAs€a€general€rule,€an€agency's€interpretation€of€its€ownÏregulations€is€entitled€to€great€deference.€€òòSeeóó€òòBowlesóó€v.€òòSeminoleÐ ¨ ø ÐRock€&€Sand€Co.óó,€325€U.S.€410,€414€(1945);ò òó ó€òòJohnsonóó€v.€òòWattsÐ P   ÐRegulator€Co.óó,€63€F.3d€1129,€1134„35€(1st€Cir.€1995).€€A€court€mustÐ ø H  Ðuphold€such€an€interpretation€unless€it€is€obviously€erroneous€orÏinconsistent€with€the€language€of€the€regulation.€€òòSeeóó€òòStinsonóó€v.Ð H˜  ÐòòUnited€Statesóó,€508€U.S.€36,€45€(1993);€òòVisiting€Nurse€Ô_ÔAss'nÔ_Ôóó€v.Ð ð@  ÐòòBullenóó,€93€F.3d€997,€1002,€1008€(1st€Cir.€1996).€€We€descry€no€suchÐ ˜è Ðerror€or€inconsistency€here.Ìà ` àIt€is€true,€as€the€taxpayers€emphasize,€that€the€proposedÏregulations€contained€no€specific€mention€of€C€corporations€orÏtheir€shareholders.€€But€context€is€critically€important€in€theÏinterpretive€process,€and€the€absence€of€such€a€reference,€whenÏcoupled€with€the€conspicuous€disappearance€of€the€safe€harbor€thatÏhad€been€a€hallmark€of€the€temporary€regulations,€left€the€way€openÏfor€the€agency€to€lump€closely„held€C€corporations€with€pass„¼through€entities.€€The€agency€followed€this€course€ð"ð€and€itsÏdetermination€does€not€constitute€a€plainly€erroneous€reading€ofÏthe€proposed€regulations.€€When€a€regulation€reasonably€can€beÏinterpreted€in€different€ways,€courts€ordinarily€should€honor€theÏagency's€choice€among€those€iterations.€€òòSeeóó€òòJohnsonóó,€63€F.3d€atÐ  )p$, Ðâ â1134„35;ò òó ó€òòStricklandóó,€48€F.3d€at€17„18.€€So€it€is€here.Ð È*&. Ðà ` àWe€add,€moreover,€that€such€a€reading€would€be€preferredÏâ âeven€if€the€agency€itself€had€not€made€an€independentÏinterpretation€of€the€proposed€regulations.€€A€close€comparison€ofÏthe€sequential€sets€of€regulations€indicates€that€the€SecretaryÏallowed€many€of€the€specific€provisions€contained€in€the€temporaryÏregulations€to€expire€and€chose€not€to€revivify€them€when€craftingÏthe€proposed€regulations.€€In€our€view,€this€chain€of€events€isÏanalogous€to€a€legislative€body's€failure€to€reenact€an€expiringÏstatute.€€In€that€situation,€courts€"generally€refuse€to€construeÏa€failure€to€re„enact€a€portion€of€a€statute€as€indicative€of€aÏdesire€to€retain€the€rule€set€forth€in€that€portion."€€òòConnoróó,€218Ð @ ÐF.€3d€at€738€(citing€òòKeppelóó€v.€òòTiffin€Savings€Bankóó,€197€U.S.€356,Ð è8 Ð373€(1905));€òòseeóó€òòalsoóó€1A€Norman€J.€Singer,€Sutherland€StatutoryÐ à ÐConstruction€ðð€23.28,€at€413€(5th€ed.€1993)€(explaining€that€underÏtraditional€rules€of€statutory€construction,€a€failure€to€reenactÏa€provision€repeals€the€provision€by€implication).€€As€the€TaxÏCourt€perspicaciously€stated€when€considering€the€precise€questionÏthat€confronts€us:€€"The€fact€that€the€Secretary€did€notÏÔ_ÔreprescribeÔ_Ô€that€exception€[for€C€corporation€shareholders]€as€partÏof€the€1992€proposed€regulations€is€persuasive€evidence€that€heÏrevoked€the€exception€at€that€time."€€òòKrukowskióó,€2000€U.S.€Tax€Ct.Ð Ð% !( ÐLEXIS€31,€at€*19.Ìà ` àAbly€represented,€the€taxpayers€labor€valiantly€toÏforestall€the€conclusion€that€we€reach.€€Some€of€their€argumentsÏare€covered€by€what€we€already€have€said.€€Others€are€adequatelyÐ p,À'0 Ðtreated€in€the€Tax€Court's€opinion€orñH ñ€areñH ñ€obviously€incorrect.€ÏOnly€two€points€merit€further€discussion.Ìà ` àThe€taxpayers€rely€heavily€on€the€dissenting€opinion€inÐ P ÐòòKrukowskióó,€a€9„to„7€en€banc€decision€of€the€Tax€Court.€€But€thatÐ ¨ ø Ðopinion€is€not€persuasive.€€The€dissenting€judges€hitched€theirÏwagon€to€a€stated€belief€that€"taxpayers€could€not€have€inferredÏfrom€[the€absence€of€an€express€reference€in€the€proposedÏregulations]€that€the€Commissioner€had€changed€the€prior€rules€toÏprovide€that€shareholders€participate€in€the€activities€of€their€CÏcorporations€.€.€.€."€€òòId.óó€at€*68.€€(Ô_ÔBegheÔ_Ô,€J.,€dissenting).€€ThisÐ ˜è Ðmisconstrues€the€facts.Ìà ` àThe€proposed€regulations€put€all€concerned€parties€onÏclear€notice€that€change€was€in€the€wind.€€As€noted€by€the€SeventhÏCircuit,€the€shift€in€analytical€models€from€the€mechanistic€formatÏfavored€in€the€temporary€regulations€to€the€more€impressionisticÏformat€advocated€in€the€proposed€regulations€"implies€a€repeal€ofÏall€mechanical€tests€[not€specifically€reenacted]€previously€usedÏto€compute€whether€a€taxpayer€participated€materially."€€òòConnoróó,Ð Ø (" Ð218€F.3d€at€739.€€It€follows€inexorably€that€ÌÓÓà8 ` àthe€natural€interpretation€of€the€failure€toÏrenew€expressly€this€regulation€is€thatÏtaxpayers€should€be€placed€on€notice€that€theÏSecretary€expanded€the€existing€standard€forÏmaterial€participation€.€.€.€[and]€theÏSecretary€repealed€by€implication€any€òòperóó€òòseóóÐ L(œ#+ Ðexclusion€of€shareholders€in€non„passthroughÏentities€.€.€.€.Ð ` x` x Ðâ âÐ È*&. ÐÓÓòòId.óó€€The€Tax€Court€reached€a€functionally€identical€conclusion.€Ð ° Ðâ âòòSeeóó€òòSchwalbachóó,€111€T.C.€at€228€("[Ô_ÔW]eÔ_Ô€read€nothing€in€[these]Ð X¨ Ðregulations€that€would€lead€us€to€believe€that€the€Commissioner€wasÏproposing€to€retain€the€[exclusion€for€C€corporationÏshareholders].").€€So€do€we:€€from€the€taxpayers'€perspective,€theÏdeletion€of€the€specific€safe€harbor€for€C€corporation€shareholdersÏshould€have€set€off€warning€bells€and€constituted€an€early€signalÏthat€a€reversal€of€position€had€occurred.Ìà ` àThe€taxpayers€also€rely€on€a€number€of€internal€IRSÏmemoranda€purporting€to€show€that€when€the€proposed€regulationsÏwere€promulgated,€IRS€staff€had€not€yet€decided€to€apply€the€self„¼rental€rule€to€the€activities€of€closely„held€C€corporations.€€TheÏtaxpayers€maintain€that€this€decision€did€not€come€about€until€atÏleast€one€year€thereafter€and€they€try€to€use€this€asserted€fact€inÏtwo€related€ways.€€First,€they€contend€that€this€paper€trailÏverifies€that€the€proposed€regulations€were€not€meant€to€take€awayÏthe€protection€previously€enjoyed€by€C€corporation€shareholders.€ÏSecond,€they€contend€that€the€memoranda€debunk€the€IRS'sÏinterpretation€of€the€proposed€regulations€because€they€show€thatÏthe€IRS€had€not€even€considered€this€implication€when€theÏregulations€were€announced.ñG ññP ñ׃×ñP ññP ñ׃×ñP ññG ññG ñ׃×ñG ñÝ ƒ#ÃÝòòÚ  Ú2Ú  ÚóóÝ  Ý×  ×Ð Ð% !( Ðà ` àWe€reject€both€aspects€of€this€argument.€€The€tax€code€isÏan€intricate€web€and€demands€clear€rules€so€that€it€may€beÏadministered€with€as€little€uncertainty€as€possible.€€To€achieveÏthis€goal,€the€IRS€must€speak€with€a€single€voice,€that€is,€throughÏformal€statements€of€policy€such€as€regulations€or€revenue€rulings.€ÏòòSeeóó€òòConnecticut€Gen.€Life€Ins.€Co.óó€v.€òòCommissioneróó,€177€F.3d€136,Ð ø H  Ð145€(3d€Cir.€1999).€€Accordingly,€statements€by€individual€IRSÏemployees€cannot€bind€the€Secretary.€€òòSeeóó€òòArmco,€Inc.óó€v.Ð H˜  ÐòòCommissioneróó,€87€T.C.€865,€867€(1986);€òòseeóó€òògenerallyóó€òòIrvingóó€v.Ð ð@  ÐòòUnited€Statesóó,€162€F.3d€154,€166€(1st€Cir.€1998)€(en€banc)Ð ˜è Ð("[Ô_ÔC]ourtsÔ_Ô€customarily€defer€to€the€statements€of€the€officialÏpolicymaker,€not€others,€even€though€the€others€may€occupyÏimportant€agency€positions.").€€Because€these€internal€memorandaÏrepresent€the€personal€views€of€the€authors,€not€the€officialÏposition€of€the€agency,€they€do€not€figure€in€our€decisionalÏcalculus.€€òòSeeóó€òòHoneywell€Inc.óó€v.€òòUnited€Statesóó,€661€F.2d€182,€185„Ð ˆØ Ð86€(Ct.€Cl.€1981).ñI ñÌÌñI ñÌà@¸ ¸ ìàò òC.€€òòThe€Rehabilitation€Tax€Creditsóó.ó óˆÐ Ø (" Ðà ` àLast€ð"ð€but€not€least€ð"ð€the€taxpayers€claim€that€they€wereÏentitled€to€use€their€rehabilitation€tax€credits€on€their€1993€andÏ1994€returns€regardless€of€the€reclassification€of€their€rentalÏincome.€€ñJ ñIn€order€tñJ ññK ñTñK ño€address€this€claim,€we€first€supply€someÏâ âbackground.Ð 8)ˆ$, Ðà ` àAt€the€pertinent€time,€the€law€provided€for€tax€creditsÏâ âas€an€incentive€for€undertaking€a€qualified€rehabilitation€of€anÏhistoric€structure.€€òòSeeóó€26€U.S.C.€ðððð€38(b),€46€(1),€47.ò òó ó€€ToÐ P Ðqualify€for€such€credits,€a€taxpayer€had€to€meet€certain€standardsÏpropounded€by€the€Secretary€of€the€Interior.€€òòSeeóó€36€C.F.R.€ðð€67.€Ð P   ÐCongress€placed€the€rehabilitation€tax€credit€provision€in€subpartÏD€of€part€IV€of€subchapter€A€of€chapter€1€of€subtitle€A€of€theÏInternal€Revenue€Code.ñG ññP ñ׃ ×ñP ññP ñ׃ ×ñP ññG ññG ñ׃×ñG ñÝ ƒ#ÃÝòòÚ  Ú3Ú  ÚóóÝ  Ý×  ×€€As€such,€the€provision€comes€within€theÐ H˜  Ðpurview€of€the€statute€restricting€the€use€of€"passive€activity"Ïcredits€in€any€tax€year€toÌÓÓà8 ` àthe€amount€(if€any)€by€which€ð"ð€(A)€the€sum€ofÏthe€credits€from€all€passive€activitiesÏallowable€for€the€taxable€year€under€ð"ð€(Ô_ÔiÔ_Ô)Ïsubpart€D€of€part€IV€of€subchapter€A€.€.€.Ïexceeds€(B)€the€regular€tax€liability€of€theÏtaxpayer€for€the€taxable€year€allocable€to€allÏpassive€activities.Ð ` x` x ÐÌÓÓ26€U.S.C.€ðð€469(d)(2).Ìà ` àWith€this€background€in€mind,€we€return€to€the€case€atÏbar.€€Here,€the€taxpayers€earned€rehabilitation€tax€credits€whileÏrefurbishing€the€Kunhardt€Mill.€€Nevertheless,€the€CommissionerÏscotched€the€use€of€these€credits€for€the€tax€years€in€question.€ÏThe€Tax€Court€upheld€this€determination.€€òòSeeóó€òòSidellóó,€78€T.C.€Memo.Ð ($x& Ðâ â1999„301,€at€28.€€The€taxpayers€brand€this€disallowance€as€contraryÐ Ð% !( Ðto€both€the€plain€language€of€the€enabling€statute€and€the€tenor€ofÏthe€congressional€policy€underlying€it.€€We€disagree.Ìâ âà ` àTo€be€sure,€the€applicable€statute,€as€the€taxpayersÏsuggest,€imposes€only€two€pertinent€preconditions€to€the€use€ofÏrehabilitation€tax€credits.€€The€first€is€that€the€credits€ariseÏout€of€the€qualified€rehabilitation€of€a€certified€historicÏstructure€(and,€thus,€be€allowable€under€subpart€D€of€part€IV€ofÏsubchapter€A).€€òòSeeóó€26€U.S.C.€ðð€469(d)(2)(A)(Ô_ÔiÔ_Ô).ò òó ó€€The€taxpayersÐ H˜  Ðplainly€satisfy€this€requirement.Ìà ` àThe€battleground€here€is€the€second€condition€ð"ð€aÏcondition€which€requires€that€the€tax€liability€that€the€credit„¼holder€seeks€to€offset€be€"allocable€to€[his]€passive€activities."€ÏòòId.óó€ðð€469(2)(B).€€The€taxpayers€posit€that€since€only€the€òòincomeóóÐ à Ðfrom€a€property€is€classified€as€nonpassive€under€the€self„rentalÏrule,€their€rental€òòactivitiesóó€remain€passive€and,€therefore,€theÐ à0 Ðtax€liability€incurred€anent€those€activities€is€eligible€to€beÏoffset€by€rehabilitation€tax€credits.€€òòSeeóó,€òòe.g.óó,€Appellant's€ReplyÐ 0€  ÐBrief€at€30€(maintaining€that€although€the€rental€òòincomeóó€receivedÐ Ø (" Ðfrom€KGR€has€been€"recharacterized€as€nonpassive€under€the€self„¼rental€rule,€the€rental€income€will€generate€a€tax€liability,€andÏtherefore,€the€taxpayers€will€have€a€tax€liability€allocable€toÏtheir€passive€activities").Ìà ` àThis€argument€is€no€more€than€a€clever€exercise€inÏsemantics€ð"ð€and€one€that€reads€the€rehabilitation€tax€creditÏprovision€with€much€too€sanguine€an€outlook.€€In€the€Tax€Reform€ActÐ p,À'0 Ðof€1986,€Congress€aspired€to€close€precisely€the€kind€of€taxÏloophole€that€the€taxpayers€here€seek€to€exploit.€€òòSeeóó,€òòe.g.óó,€HouseÐ X¨ ÐConf.€Rep.€99„841,€at€147,€òòreprintedóó€òòinóó€1986€U.S.C.C.A.N.€4075,Ð P Ð4235€(explaining€that€"the€underlying€purpose€of€the€passive€lossÏprovision€[is€to€prevent]€the€sheltering€of€positive€income€sourcesÏthrough€the€use€of€tax€losses€derived€from€passive€businessÏactivities").€€When€Congress€refined€the€rehabilitation€tax€creditÏfour€years€latter,€it€aspired€to€grant€a€carefully€circumscribedÏincentive€for€the€restoration€of€historic€structures€ð"ð€but€thereÏare€no€signs€that€it€meant€to€blunt€the€thrust€of€its€earlierÏhandiwork.€€If€allowed€to€prevail,€the€taxpayers'€reading€of€theÏrehabilitation€tax€credit€provision€would€undermine€the€overarchingÏintent€of€Congress.Ìà ` àTo€be€specific,€the€Secretary'sò òó ó€regulations€classify€rentÐ 8ˆ Ðpaid€by€closely„held€C€corporations€to€their€proprietors€asÏnonpassive€income€for€a€reason:€€so€that€the€latter€cannotÏmanipulate€the€corporation's€revenues€to€take€advantage€of€theÏbenefits€that€attach€to€the€classification€of€income€as€passive.€ÏFree€use€of€rehabilitation€tax€credits€comprises€one€of€thoseÏbenefits.€€Thus,€as€more€fully€explained€by€the€Tax€Court,€theÏSidells'€credits€were€not€available€for€use€in€1993€and€1994Ïbecause€they€exceeded€their€passive€tax€liability€for€those€years.€ÏòòSeeóó€òòSidellóó,€78€T.C.€Memo.€1999„301,€at€27„28.Ð  )p$, Ðà ` àThe€Ô_ÔsockdolagerÔ_Ô€rests€in€the€regulations.€€While€both€theÏ1988€and€1989€temporary€regulations€contained€ñL ña€ñL ñsunset€provisionñM ñsñM ñ,Ð p,À'0 Ðthe€Secretary€went€out€of€his€way€to€preserve€Temp.€Treas.€Reg.€ððÏ1.469„3T€in€T.D.€8417,€òòLimitation€on€Passive€Activity€Losses€andÐ X¨ ÐCredits€ð"ð€Technical€Amendments€to€Regulationsóó,€57€Fed.€Reg.€20,747Ð P Ð(May€15,€1992).€€That€preserved€regulation,€which€comprises€a€partÏof€the€transition€rules,€makes€it€very€clear€that€a€taxpayer€whoÏearns€rehabilitation€tax€credits€must€have€net€passive€income€inÏorder€to€employ€those€credits€in€a€given€year.€€òòSeeóó€Temp.€Treas.Ð  ð  ÐReg.€ðð€1.469„3T(g)€(Examples€(3)€and€(4)).€€Since€the€taxpayers€inÏthis€case€do€not€have€any€net€passive€income€for€the€years€inÏquestion€ð"ð€what€they€had€reported€as€passive€income€has€now€beenÏreclassified€by€the€Commissioner,€òòseeóó€òòsupraóó€ð"ð€they€are€not€eligibleÐ @ Ðto€use€their€rehabilitation€tax€credits€for€those€years.Ìà ` àContrary€to€the€taxpayers'€Ô_ÔimportuningsÔ_Ô,€this€result€doesÏnot€defeat€the€purpose€of€the€rehabilitation€tax€credit€law.€€TheÏlaw€still€provides€a€meaningful€incentive.€€Indeed,€the€taxpayers,Ïnotwithstanding€the€reclassification€of€the€Kunhardt€Mill€rentalÏincome,€have€at€least€three€remaining€avenues€for€taking€advantageÏof€the€credits€in€later€tax€years.€€First,€they€may€carry€over€anyÏunused€credits€indefinitely€until€such€time€as€they€have€passiveÏincome€to€offset€against€these€credits.€€òòSeeóó€26€U.S.C.€ðð€469(b);Ð ($x& Ðòòseeóó€òòalsoóó€òòSt.€Charles€Inv.€Co.óó€v.€òòCommissioneróó,€110€T.C.€46,€56Ð Ð% !( Ð(1998).€€Second,€upon€sale€or€disposition€of€the€rehabilitatedÏproperty,€the€taxpayers€can€use€any€suspended€credits€againstÏpassive€income€from€the€same€activity,€then€against€net€passiveÏincome€from€other€activities,€and€finally,€as€a€nonpassive€loss.€Ð p,À'0 ÐòòSeeóó€26€U.S.C.€ðð€469(g);€òòSt.€Charlesóó,€110€T.C.€at€49.€€Third,€theÐ ° Ðtaxpayers€at€the€time€of€disposition€might€be€able€to€employ€ñN ñanyÏñN ñunusedÏcredits€to€adjust€their€basis€in€the€property.€€òòSeeóó€26€U.S.C.€ððÐ P Ð469(j)(9).€€Viewed€from€this€perspective,€the€Commissioner'sÏdisallowance€of€the€rehabilitation€tax€credits€for€1993€and€1994Ïdoes€not€contravene€Congress's€discernible€intent.Ìò òIII.€€CONCLUSIONó óÐ  ð  Ðà ` àWe€need€go€no€further.€€The€Commissioner's€determinationÏof€the€tax€due€and€owing€rests€on€a€sturdy€factual€and€legalÏfoundation.€€Accordingly,€we€sustain€the€decision€of€the€Tax€Court.ÌÌò òòòAffirmedóó.ó ó