- 5 - Petitioners timely filed a petition contesting respondent’s determination, arguing that they qualified for an exception to the passive loss rules because of the nature of the services AGI provided and because of the number of hours petitioner wife spent managing AGI. Petitioner wife also disputes respondent’s claim that she worked full-time in her law practice, claiming that the law practice income was mostly attributable to income earned on a flat-fee basis or for work performed in prior years. OPINION Passive activity losses that exceed passive activity income are generally disallowed. Sec. 469(a)(1), (d)(1). Passive activities include the conduct of any trade or business activities in which the taxpayer does not materially participate and rental activities without regard to whether the taxpayer materially participates. Sec. 469(c)(1), (2), (4); see also sec. 469(j)(8); sec. 1.469-1T(e)(1), Temporary Income Tax Regs., 53 Fed. Reg. 5702 (Feb. 25, 1988).3 A rental activity is any activity where payments are principally for the use of tangible property. Sec. 469(j)(8). There are several exceptions to the definition of “rental activity”, one of which petitioners assert applies.4 Sec. 1.469- 3The Commissioner is given authority under sec. 469(l) to prescribe regulations to carry out the provisions of the section. As relevant here, this statutory authority was carried out in sec. 1.469-1T, Temporary Income Tax Regs., 53 Fed. Reg. 5701 (Feb. 25, 1988), sec. 1.469-5T, Temporary Income Tax Regs., 53 Fed. Reg. 5725 (Feb. 25, 1988), and sec. 1.469-9, Income Tax Regs. See also sec. 7805. 4Petitioners also argued that the leasing activity was nonpassive because petitioner wife qualified as a real estate (continued...)Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Next
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