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the office by the net losses from the other rental properties.
Petitioners’ sole argument is that the recharacterization rule is
invalid for two reasons. First, petitioners assert, the
recharacterization rule is arbitrary, capricious, and contrary to
the statute. Second, petitioners assert, the recharacterization
rule improperly negates their “bona fide business purpose” for
renting the office to the corporations.
We disagree with petitioners’ argument that the
recharacterization rule is invalid. As to the first assertion,
petitioners note correctly that this Court has declared the
recharacterization rule valid. See Krukowski v. Commissioner,
114 T.C. 366 (2000) (Court-reviewed),3 affd. 279 F.3d 547 (7th
Cir. 2002); Schwalbach v. Commissioner, 111 T.C. 215 (1998); Shaw
v. Commissioner, T.C. Memo. 2002-35; Sidell v. Commissioner, T.C.
Memo. 1999-301, affd. 225 F.3d 103 (1st Cir. 2000); Connor v.
Commissioner, T.C. Memo. 1999-185, affd. 218 F.3d 733 (7th Cir.
2000). Petitioners also note correctly that so have three Courts
3 Although the Court in Krukowski v. Commissioner, 114 T.C.
366 (2000), affd. 279 F.3d 547 (7th Cir. 2002), was split as to
whether the taxpayers qualified under sec. 1.469-11(b)(1),
Income Tax Regs., for transitional relief from application of the
recharacterization rule, id. at 376 (Beghe, J., concurring in
part and dissenting in part), the Court held unanimously that the
recharacterization rule is a valid regulation, id. Here,
petitioners challenge only the validity of the recharacterization
rule. Because their years in issue are 1997, 1998, and 1999,
they make no claim to transitional relief under sec.
1.469-11(b)(1), Income Tax Regs. Only taxable years beginning
before Oct. 4, 1994, qualify for transitional relief under that
section. Id.
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