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Respondent determined the following deficiencies and
accuracy-related penalties:
Accuracy-related Penalty
Year Deficiency Sec. 6662(a)
1993 $3,616 $723
1994 6,089 1,218
The issues we must decide are: (1) Whether respondent
properly recharacterized rental income petitioners received
during the taxable years at issue as nonpassive income pursuant
to section 469, and (2) whether petitioners are liable for
accuracy-related penalties for the taxable years at issue.
The parties submitted this case fully stipulated pursuant to
Rule 122, and the stipulated facts are so found. Petitioners
resided in Mukwonago, Wisconsin, at the time they filed their
petition.
On November 1, 1979, petitioner Jane H. Connor (Ms. Connor),
lessor, executed a 3-year standard office lease (Lease) with
Michael F. Connor, D.D.S., S.C., lessee, through petitioner
Michael F. Connor (Dr. Connor). Dr. Connor is the president and
a shareholder of a personal service corporation named Michael F.
Connor, D.D.S., S.C. The office was located at 603 Rochester
Street, Mukwonago, Wisconsin (Rochester Street building).
The terms of the Lease required the lessee to make monthly
rental payments in the amount of $900, for a total rent of
$32,400 for the 3-year period ending October 31, 1982. On
October 31, 1982, Ms. Connor executed an Addendum to Lease dated
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