                      T.C. Memo. 1997-295



                    UNITED STATES TAX COURT




SANDY LAKE ROAD LIMITED PARTNERSHIP, J. STEVE ANDERSON III, TAX
                 MATTERS PARTNER, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



    Docket No. 9441-95.                       Filed June 30, 1997.



         R determined adjustments to certain of SLR's
    partnership items for 1990. On its 1990 Return of
    Partnership Income, SLR categorized as "other
    deductions" Texas "rollback" taxes incurred at the time
    of disposition of unimproved real property, as well as
    related attorney's fees. R reclassified these items as
    deductions related to portfolio income. See sec.
    469(e)(1)(A)(i)(II), I.R.C. P now asserts that these
    items may be used to reduce the amount realized on the
    disposition of the property, on the ground that the
    rollback tax is not a real property tax within the
    meaning of sec. 164(a)(1), I.R.C. In the alternative,
    P disputes R's treatment of the disputed items as
    deductions related to portfolio income.

         1. Held: The rollback tax is a specifically
    enumerated real property tax within the meaning of sec.
                               - 2 -

     164(a)(1), I.R.C., and therefore must be deducted
     rather than used to offset the amount realized on the
     disposition of real property. Waxenberg v.
     Commissioner, 62 T.C. 594 (1974) and Rev. Rul. 80-121,
     1980-1 C.B. 43, applied; Rev. Rul. 73-600, 1973-2 C.B.
     47, distinguished.

          2. Held, further, rollback taxes and attorney's
     fees related to the determination of such taxes are
     incurred "in connection with" property from which
     portfolio income is derived, and are therefore expenses
     allocable to portfolio income. Sec.
     469(e)(1)(A)(i)(II), I.R.C.; sec. 1.469-2T(d)(4),
     Temporary Income Tax Regs., 53 Fed. Reg. 5716 (Feb. 25,
     1988).


     J. Steve Anderson III (tax matters partner), pro se.

     Gary L. Bloom, for respondent.



                         MEMORANDUM OPINION

     NIMS, Judge:   By Notice of Final Partnership Administrative

Adjustment (FPAA) dated March 1, 1995, respondent determined

adjustments to partnership items for the 1990 taxable year of

Sandy Lake Road Limited Partnership (SLR) as follows:

     Partnership Items         As Reported    As Adjusted

     Farm loss                   ($4,807)        - 0 -
     Net long-term
          capital gain           874,992      $1,217,754
     Other deductions
          (Sch. K, line 11)     (422,410)        - 0 -
     Portfolio deductions         - 0 -          427,217
     Net earnings (loss)
          self employment         (2,429)        - 0 -

     All section references, except where otherwise specified,

are to sections of the Internal Revenue Code in effect for the
                                 - 3 -

year in issue.   All Rule references are to the Tax Court Rules of

Practice and Procedure.

     After concessions by both parties, the sole remaining issue

for decision is whether certain Texas "rollback" taxes in the

amount of $364,576.70 and attorney's fees in the amount of $2,500

comprising a portion of the "Other deductions" on the Schedule K

attached to SLR's return may be applied in reduction of the

amount realized on the disposition of real property, as asserted

by J. Steve Anderson III (petitioner or Anderson), or were

properly reclassified as deductions related to so-called

portfolio income, see section 469(e)(1)(A)(i)(II); and section

1.469-2T(c)(3)(i), Temporary Income Tax Regs., 53 Fed. Reg. 5716

(Feb. 25, 1988), as determined by respondent.

     This case was submitted on a full stipulation of facts, and

the facts as stipulated are so found.    This reference

incorporates herein the stipulation of facts and attached

exhibits.   SLR is a limited partnership, with its principal place

of business located at 5809 NW Grand Boulevard, Suite C, Oklahoma

City, Oklahoma, at the time the petition was filed.

                            Background

     For its taxable year 1990, SLR was subject to the unified

audit procedures of the Tax Equity and Fiscal Responsibility Act

of 1982, Pub. L. 97-248, sec. 402(a), 96 Stat. 648-667, codified

at sections 6221 through 6233.    Anderson is its only general

partner; he holds a 50.5 percent interest in SLR.    Anderson is
                               - 4 -

also SLR's Tax Matters Partner (TMP).    Three other individuals

hold limited partnership interests in SLR totaling 49.5 percent.

     SLR was formed under an original partnership agreement dated

April 22, 1974, under Texas law.   SLR sold 28.49 acres of

undeveloped real estate (the Property) for $1,560,000 in 1990.

Of this amount, $450,000 was reserved in connection with a like-

kind exchange under section 1031(a).    Respondent concedes that

the capital gain on the sale in the amount of $874,992, of which

gain $342,762 was deferred under the provisions of section

1031(a), was properly reported.

     The Property was designated, or classified for ad valorem

tax purposes, as 1-d-1 open-space land under Texas law during all

of 1985 and continuing through the date of transfer on October 1,

1990.   For ad valorem tax purposes, 1-d-1 land is assessed at a

much reduced value as compared with its nonagricultural use

market value.

     Section 23.55 of the Tex. Tax Code (West 1992) imposes an

additional tax on 1-d-1 land if and when the use of that property

changes.   This additional tax is known colloquially as a

"rollback tax".   The rollback tax is an additional tax imposed by

law as of the date the cessation or change of use occurs.    It has

its own delinquency date, and it does not exist until the event

that triggers the rollback occurs.

     A property owner can trigger the rollback by ending

agricultural operations or by diverting the property to a non-
                               - 5 -

agricultural use.   Selling the property does not trigger the 1-d-

1 rollback; rather, it is the determination of a change in use

that triggers the rollback.

     The calculation of the rollback tax is based upon the

difference between "market" and the property's agricultural use

value.   (The term "market", as used in Tex. Tax Code Ann. sec.

23.55 (West 1992), appears to be used synonymously with "fair

market value.")

     The purchaser of the Property, Pulte Home Corporation of

Texas (Pulte Home), required SLR to be totally responsible for

any and all rollback taxes assessed or to be assessed against the

Property and to take all steps necessary to trigger the rollback

provisions immediately prior to the date of conveyance of the

Property by SLR.

     By letter dated September 27, 1990, petitioner notified the

Dallas Central Appraisal District, Dallas, Texas, that the

agricultural use of the Property was discontinued as of September

25, 1990.   The Dallas Central Appraisal District notified SLR on

December 12, 1990, that the Property no longer qualified for

open-space assessment and that the Property was subject to

rollback taxes.

     An escrow account of $450,000 (unrelated to the previously

mentioned $450,000 reserved for the like-kind exchange) was

established at closing for the purpose of funding the payment of
                               - 6 -

the rollback taxes.   SLR paid the following rollback taxes in

1990:

            Amount             Taxing Authority

          $137,233.69          City of Coppell, Texas
           146,617.41          Coppell Independent School District
            53,284.14          Municipal Utility District
            10,746.88          Dallas County Assessor
            16,694.58          Dallas County Assessor

           364,576.70          Total



     As reflected on the Schedules K-1 attached to and made a

part of SLR's 1990 return, SLR distributed the following tax

deductions to its partners as "Other Deductions":

     Investment Expenses - Professional fees          $  2,830
     Investment Expenses - Ad valorem taxes            419,580
          Total                                        422,410


     Of the $419,580 reported as ad valorem taxes, $364,576.70

represents the rollback taxes, and petitioner agrees that the

$55,003.30 balance represents an ad valorem tax for which SLR

would have been liable regardless of the sale.    Of the $2,830

deducted as professional fees, $2,500 represents an attorney's

fees liability incurred in connection with the determination of

the rollback taxes.

                            Discussion

     This case presents an issue, among other things, under the

passive loss rules of section 469, and more specifically the

provisions of section 469(e)(1)(A), which provides:
                                  - 7 -

     (e) Special rules for determining income or loss from a
passive activity.--For purposes of this section--

          (1) Certain income not treated as income from passive
     activity.--In determining the income or loss from
     any activity--

               (A) In general.--There shall not be taken into
          account--

                    (i)   any--

                         (I) gross income from interest,
                    dividends, annuities, or royalties not
                    derived in the ordinary course of a trade or
                    business,

                         (II) expenses (other than interest)
                    which are clearly and directly allocable to
                    such gross income, and

                         (III) interest expense properly
                    allocable to such gross income, and

                    (ii) gain or loss not derived in the
               ordinary course of a trade or business which is
               attributable to the disposition of property--

                         (I) producing income of a type
                    described in clause (i), or

                          (II)    held for investment.

     For purposes of clause (ii), any interest in a
     passive activity shall not be treated as property
     held for investment.


Temporary regulations refer to income described in the above

section as "portfolio income".     Sec. 1.469-2T(c)(3)(i), Temporary

Income Tax Regs., 53 Fed. Reg. 5716 (Feb. 25, 1988).

     The passive loss rules were enacted as part of the Tax

Reform Act of 1986 (TRA 1986), Pub. L. 99-514, 100 Stat. 2085, in

response to the Congressional belief that "decisive action * * *
                               - 8 -

[was] needed to curb the expansion of tax sheltering."   S. Rept.

99-313 (1986), 1986-3 C.B. (Vol. 3) 714.   Portfolio income (which

includes gain from the sale of property held for investment, see

infra) is not treated as income from a passive activity because

such income, even net of expenses, generally will be positive and

thus could be used to benefit from tax shelter losses or credits.

S. Rept. 99-313, supra, 1986-3 C.B. (Vol. 3) at 728.

     Section 469(e)(1)(A)(i)(II) provides that in determining

income or loss from a passive activity, expenses (other than

interest, which is treated separately), clearly and directly

allocable to portfolio income are not to be taken into account.

     Section 1.469-2T(d)(4), Temporary Income Tax Regs., 53 Fed.

Reg. 5716 (Feb. 25, 1988), provides:

          (4) Clearly and directly allocable expenses. For
     purposes of section 469 and regulations thereunder, an
     expense (other than interest expense) is clearly and
     directly allocable to portfolio income (within the
     meaning of paragraph (c)(3)(i) of this section) if and
     only if such expense is incurred as a result of, or
     incident to, an activity in which such gross income is
     derived or in connection with property from which such
     gross income is derived. * * *


     There can be no dispute that the realized gain from the sale

of the Property is to be treated as portfolio income, since the

gain was not derived in the ordinary course of a trade or

business, but was attributable to the disposition of property

held for investment.   Sec. 469(e)(1)(A)(ii)(II).   The parties do

not disagree.
                                - 9 -

     In the FPAA, respondent disallowed $422,410 in "other

deductions" (including the amounts paid as rollback taxes) as

claimed by SLR on the 1990 return, but allowed portfolio

deductions in the amount of $427,217 (which amount likewise

included the rollback taxes).   It is of course indisputable that

under section 469(e)(1)(A)(i)(II) expenses clearly and directly

allocable to portfolio income may not be taken into account in

determining the income or loss from any passive activity, but

instead are allocable to "such gross income"--i.e., the portfolio

income--to which they relate.

     It seems clear that the passive activity rules of section

469 interact with other Code provisions.   We note in this

connection that the conference report to accompany TRA 1986

states:

          Interaction with other Code sections.--It is
     clarified that the passive loss rule applies to all
     deductions that are from passive activities, including
     deductions allowed under sections 162, 163, 164, and
     165. For example, deductions for State and local
     property taxes incurred with respect to passive
     activities are subject to limitation under the passive
     loss rule whether such deductions are claimed above-
     the-line or as itemized deductions under section 164.
     [H. Conf. Rept. 99-841 (Vol. 2), at II-139, 1986-3 C.B.
     (Vol. 4) 139.]

     In this case, it is the treatment of the Texas rollback

taxes that is in dispute.   Therefore, if the portfolio income

provisions are involved as respondent maintains, then section

164, relating to deductions for taxes, interacts with section

469(e)(1)(A)(i)(II) to determine the proper allocation of the
                                - 10 -

rollback taxes to SLR's portfolio income--its recognized gain on

the sale of the Property.

     Section 164(a) provides:

     SEC. 164.   TAXES.

          (a) General Rule.--Except as otherwise provided in
     this section, the following taxes shall be allowed as a
     deduction for the taxable year within which paid or accrued:

           (1)   State and local, and foreign, real property taxes.

           (2)   State and local personal property taxes.

          (3) State and local, and foreign, income, war profits,
     and excess profits taxes.

           (4)   The GST tax imposed on income distributions.

           (5)   The environmental tax imposed by section 59A.

     In addition, there shall be allowed as a deduction State and
     local, and foreign, taxes not described in the preceding
     sentence which are paid or accrued within the taxable year
     in carrying on a trade or business or an activity described
     in section 212 (relating to expenses for production of
     income). Notwithstanding the preceding sentence, any tax
     (not described in the first sentence of this subsection)
     which is paid or accrued by the taxpayer in connection with
     an acquisition or disposition of property shall be treated
     as part of the cost of the acquired property or, in the case
     of a disposition, as a reduction in the amount realized on
     the disposition.


     Thus, in the first sentence section 164 itemizes a number of

taxes (including real property taxes) that are allowed as a

deduction for the taxable year within which they are paid or

accrued.   The second sentence allows as a deduction certain

additional taxes which are paid or accrued within the taxable

year in carrying on a trade or business or incurred for the
                               - 11 -

production of income.   The last sentence of section 164(a)

provides an exception in that notwithstanding the second

sentence, certain taxes are required to be capitalized.      Thus,

any tax, other than any of those itemized in the first sentence,

which is paid or accrued in connection with the acquisition or

disposition of property, is to be treated as a cost of the

acquired property or as a reduction in the amount realized on the

disposition of property, as the case may be.

     The last sentence of section 164(a) was added by section

134(a)(1) of TRA 1986, 100 Stat. 2116.    According to the

conference report, there previously was uncertainty as to whether

certain taxes incurred in a trade or business or an income-

producing activity could be deducted or had to be capitalized.

The conference report explains that the new provision was added

to make it clear that State, local, or foreign taxes (other than

real property taxes and certain other specified taxes) that are

incurred in a trade or business or in an income-producing

activity in connection with the acquisition or disposition of

property are to be capitalized.    H. Conf. Rept. 99-841 (Vol. 2),

at II-20 (1986), 1986-3 C.B. (Vol. 4) 20.

     In the case before us petitioner would deem it advantageous

to have SLR capitalize the rollback taxes.    For example, section

68 places an overall limitation on itemized deductions in cases

where the adjusted gross income of individuals exceeds an

"applicable amount".    (The shares of the realized gain on the
                              - 12 -

sale of the Property allocated to the partners on the Schedules

K-1 exceeds the applicable amount in each case.)   Also, we note

that for purposes of the alternative minimum tax under section

56, section 56(b)(1)(A)(ii) disallows any taxes described in

paragraph (1), (2), or (3) of section 164(a).   (The record does

not contain the income tax returns of the partners, so the

applicability of the alternative minimum tax in individual cases

is unknown.)

     Petitioner argues that the rollback taxes paid by the

partnership should simply be treated as a reduction in the amount

realized on the sale of the Property, since the rollback taxes

were incurred and paid solely as a negotiated condition of the

sale.   Petitioner points out that the parties stipulated that the

payment of the rollback taxes was a requirement of the sale

imposed by the buyer, Pulte Home, and that without this

requirement the rollback taxes would not have been incurred at

the time of sale.   Petitioner suggests that the rollback taxes

which were paid should not be treated as a tax at all, but rather

as a cost of sale which reduced the amount realized.   Beyond this

unamplified suggestion, petitioner bases his entire argument on

the position that the rollback tax is not a tax on real property

for purposes of section 164(a)(1).

     Respondent disagrees that the rollback taxes paid by SLR

should be treated as a reduction in the amount realized on the

sale.   Instead, respondent argues that the rollback taxes are
                              - 13 -

State and local real property taxes, and therefore must be dealt

with as expenses which are clearly and directly allocable to

portfolio income.   Respondent also argues that the attorney's fee

must be dealt with in a similar manner.

     We agree with respondent for the reasons which follow.

     Under Texas law, there are two distinct constitutional and

statutory provisions concerning the valuation of land devoted to

agricultural use for ad valorem tax purposes.   In order to

qualify as agricultural use property under section 1-d, Tex.

Const. Art. 8 (the agricultural use provision), a business

venture for profit is required, and the business must be the

primary occupation and source of income of the owner.   To qualify

under section 1-d-1, Texas Const. Art. 8 (the open-space

provision), the property must be currently devoted principally to

agricultural use to the degree of intensity generally accepted in

the area and must have been so devoted for 5 of the preceding 7

years.   See also Tex. Tax Code Ann. secs. 23.41-23.46 (West

1992).   The principal difference between the two provisions is

that open-space classification does not require that agriculture

be the primary occupation and primary source of income of the

owner.

     Section 1.164-3, Income Tax Regs., defines a real property

tax as follows:

          (b) Real property taxes. The term "real property
     taxes" means taxes imposed on interests in real
     property and levied for the general public welfare, but
                              - 14 -

      it does not include taxes assessed against local
      benefits. [Emphasis added.]

      Rev. Rul. 80-121, 1980-1 C.B. 43, which both parties cite,

provides additional guidelines for determining whether a tax is

imposed on an interest in real property.   (Petitioner does not

contend that the rollback tax is a tax that is assessed against

local benefits rather than one that is levied for the general

public welfare.)   Rev. Rul. 80-121, 1980-1 C.B. 43 addressed, in

part, whether a Vermont tax imposed on gain from the sale or

exchange of certain land was deductible under section 164(a)(1)

as a real property tax.   Rev. Rul. 80-121, 1980-1 C.B. 43, 44-45,

states:

           Some of the characteristics of a tax imposed on
      real property or on an interest in real property are:
      (1) the tax is generally imposed or triggered by the
      ownership of real property and not the exercise of one
      or more of the incidents of property ownership, such as
      use or disposition, (2) the tax is measured by the
      value of real property, and (3) liability for the tax
      is not solely personal. [Citations omitted.]

      Petitioner contends that the rollback tax should not be

treated as a real property tax for purposes of section 164(a)(1)

since the rollback tax lacks the necessary characteristics of a

real property tax as set forth in Rev. Rul. 80-121, 1980-1 C.B.

43.   In support of this argument, petitioner claims that the

rollback tax differs from a "garden variety" real property tax in

that the former is not a tax due and owing until the owner-user

determines to trigger the tax.   Petitioner also avers that Rev.

Rul. 80-121 guidelines except the rollback tax from real property
                                - 15 -

tax classification since the "rollback tax was imposed upon an

act, changing the property's use from agriculture to non-

agriculture, which involves [an exercise of] an incident of

ownership of [the] property."

     Respondent, on the other hand, maintains that, just as

petitioner does not dispute that the $55,003.30 of ad valorem

taxes assessed on the land were real property taxes, there should

be no dispute that rollback taxes assessed at the Property's

market value are real property taxes.    The only difference

between the two is the amount of the assessed value of the land.

Respondent further asserts that the rollback tax is nothing like

the transfer tax at issue in Rev. Rul. 80-121, 1980-1 C.B. 43,

since the former is imposed on the value of real property,

whereas the latter is imposed solely on gains from the sale or

exchange of real property.

     We agree with petitioner that not every tax concerning real

property is a real property tax within the scope of section

164(a)(1).   See, e.g., Rev. Rul. 80-121, 1980-1 C.B. 43.

However, the fact that the property's owner-user controls the

timing of the imposition of the rollback tax is not enough, by

itself, to remove such a tax from the definition of a real

property tax.   Upon examination, the rollback tax meets each of

the guidelines set forth in Rev. Rul. 80-121, 1980-1 C.B. 43.

     The linchpin of petitioner's argument, that the rollback tax

is triggered by an incident of ownership (the use of the
                              - 16 -

Property), and consequently is not a real property tax, is not

convincing.   The first guideline set forth in Rev. Rul. 80-121,

1980-1 C.B. 43, appears to be distilled from Rev. Rul. 73-600,

1973-2 C.B. 47; see also Rev. Rul. 75-558, 1975-2 C.B. 67.      Rev.

Rul. 73-600, 1973-2 C.B. 47, addressed the deductibility under

section 164(a)(1) of a "rates tax" paid by a renter stemming from

the renter's occupation or use of real property.    In a case

reflecting our approval of the ruling, we held that the rates tax

was not a deductible real property tax under section 164(a)(1).

Waxenberg v. Commissioner, 62 T.C. 594 (1974).     In so holding, we

found it decisive that the rates tax was measured by the rental

value of the property, which "appears to value the privilege of

occupying the property rather than the underlying value of the

property itself."   Id. at 604.

     In sharp contrast, in the instant case, while the taxes were

triggered because of a change in use of the Property, they were

not imposed on the use or occupation of the Property per se.

Unlike the rates tax at issue in Waxenberg v. Commissioner,

supra, and contrary to petitioner's assertion that the taxes were

"imposed upon an act", the rollback taxes were specifically

"imposed on the land".   Sec. 23.55, Tex. Tax Code Ann. (West

1992).

     An ad valorem tax is one which is imposed on the basis of

the value of the article or thing taxed.   Waxenberg v.

Commissioner, supra at 604.   The rollback tax, like the tax on
                               - 17 -

the open-space assessed value of the Property that petitioner

concedes is a real property tax, is based on the assessed value

of the Property, albeit it is calculated using the market value

of the land rather than the open-space assessed value.    The

market value assessment is made at the same time as the open-

space assessment and is merely held in abeyance, with interest,

from that date until a change in use or cessation of use occurs.

Thus, the rollback provision functions as an ad valorem recapture

tax.    See Tex. Tax Code Ann. secs. 23.52(e), 23.55 (West 1992).

       In Rev. Rul. 73-600, 1973-2 C.B. 47, the individual liable

for the rates tax was only personally liable; if the tax was not

paid, it could not be reduced to a lien against the occupied

property.    Here, however, a tax lien attaches to the land on the

date the change of use occurs to secure payment of the additional

tax and interest imposed by section 23.55, as well as any

penalties incurred.    Sec. 23.55(b), Tex. Tax Code Ann (West

1992).

       Based on the above discussion, we hold that the Texas

rollback tax is a tax imposed on an interest in real property,

and is therefore, in both substance and form, a real property tax

within the meaning of section 164(a)(1) and, by cross-reference,

the parenthetical provision contained in the last sentence of

section 164(a)(1).    See Waxenberg v. Commissioner, supra at 603-

604 (quoting City of De Land v. Florida Public Service Co., 161

So. 735, 738 (Fla. 1935)) ("[I]f the tax is computed upon the
                              - 18 -

valuation of the property, and assessed by assessors, * * *

although privileges may be included in the valuation, it is

considered a property tax.") (emphasis added); see also Polakis

v. Commissioner, 91 T.C. 660, 665 (1988).

     We now turn to consider whether SLR may classify the

rollback taxes and attorney's fee as "Other deductions" on line

11 of its Schedule K, or whether the deductions must be treated

by SLR's partners as line 10 deductions related to portfolio

income.

     Portfolio income subsumes all gross income, other than

income derived in the ordinary course of a trade or business,

that is attributable to the disposition of property held for

investment.   Sec. 469(e)(1)(A)(ii)(II); sec. 1.469-

2T(c)(3)(i)(D), Temporary Income Tax Regs., 53 Fed. Reg. 5713

(Feb. 25, 1988).   As stated, petitioner does not dispute that the

income from the sale of the Property is portfolio income.

     We have previously quoted section 1.469-2T(d)(4), Temporary

Income Tax Regs., 53 Fed. Reg. 5713 (Feb. 25, 1988), which states

in part that "For purposes of section 469 and regulations

thereunder, an expense * * * is clearly and directly allocable to

portfolio income (within the meaning of paragraph (c)(3)(i) of

this section) if and only if such expense is incurred * * * in

connection with property from which such gross income is

derived."   Petitioner has conceded that the $55,003.30 of ad

valorem taxes based on the Property's open-space assessment is
                                - 19 -

properly reclassified as a deduction related to portfolio income.

Likewise, we think it ineluctable that rollback taxes, as real

property taxes, are incurred "in connection with" the Property,

and we therefore hold that they are expenses allocable to

portfolio income under section 469(e)(1)(A)(i)(II) and the above

regulations.    Petitioner, in any event, has failed to convince us

otherwise.

       Under section 212(3), there is allowed as a deduction all

the ordinary and necessary expenses paid or incurred in

connection with the determination, collection, or refund of any

tax.    Although section 212(3) applies only to individuals, under

section 702 each partner, in determining his income tax, is

required to take into account separately his distributive share

of certain partnership items.    Section 702(a)(7) includes "other

items of income, gain, loss, deduction, or credit, to the extent

provided by regulations prescribed by the Secretary."    Section

1.702-1(a)(8)(i), Income Tax Regs., provides that "Each partner

shall take into account separately, as part of any class of

income, gain, loss, deduction, or credit, his distributive share

of the following items:    * * * nonbusiness expenses as described

in section 212".    See Surloff v. Commissioner, 81 T.C. 210, 241

(1983).    Since the parties have stipulated that the attorney's

fees were related "to the determination of the rollback taxes"

owing on the Property, we hold that the attorney's fees were
                              - 20 -

incurred "in connection with" the Property, and are, therefore,

investment expenses related to portfolio income.

     We note that petitioner now contends that the attorney's

fees were incurred, not in the determination of the rollback

taxes, as stipulated, but "as part of the contract negotiations

concerning the disposition of the property".     In accordance with

Woodward v. Commissioner, 397 U.S. 572 (1970), petitioner argues

that the attorney's fees must be treated as capital expenditures,

which would reduce the gain on the sale of the Property.

However, the TMP's discussion of the attorney's fees in a letter

to the partners dated January 7, 1992, indicates that the fees

had nothing to do with negotiations for the sale of the Property.

In any event, the Court will not permit petitioner to qualify or

change the stipulation.   Rule 91(e).

     To reflect the foregoing and issues previously resolved,



                                    Decision will be entered

                               under Rule 155.
