- 12 - Overall, testimony established that the services were the crucial determinant in attorneys’ choosing to lease from AGI, and we found the testimony on behalf of petitioners credible and compelling. See Anderson v. City of Bessemer City, 470 U.S. 564, 575 (1985). We therefore find the payments to AGI were principally for the services provided and not for the space leased. Consequently, the leasing activity is not a rental activity. Material Participation Finally, to qualify the losses as nonpassive, petitioners must carry their burden to prove not only that the extraordinary personal services exception applies, but also that petitioners materially participated in the activity. Material participation is defined as involvement in the operations of an activity that is regular, continuous, and substantial. Sec. 469(h)(1). A taxpayer may also satisfy the material participation requirement if the individual satisfies any one of seven regulatory tests. See sec. 1.469-5T(a), Temporary Income Tax Regs., supra at 5725; see also Lapid v. Commissioner, T.C. Memo. 2004-222 (citing Mordkin v. Commissioner, T.C. Memo. 1996-187, which upheld the regulatory “safe harbor” tests letting taxpayers prove material participation by showing they spent a certain number of hours on an activity). The test most applicable in this case is whether petitioner wife participated in the nonrental activity for more than 500 hours during the year. See Harrison v. Commissioner, T.C. Memo. 1996-509; sec. 1.469-5T(a)(1), Temporary Income TaxPage: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Next
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