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Petitioner generally took depreciation deductions on the
equipment he leased the law firm using the modified accelerated
cost recovery system under section 168. Respondent denied the
deductions only in 1998 and 1999, years in which petitioner
experienced losses. Respondent argued that the leasing activity
losses were passive and not deductible without passive income.
Respondent later asserted, in an amended answer, that the
deductions should be denied because petitioner was not engaged in
the equipment leasing activity for profit. Petitioner objected
and argued that he held the equipment for profit and that the
leasing activity was a nonrental activity in which he materially
participated.
Respondent issued petitioners a deficiency notice on May 15,
2003, in which respondent determined deficiencies in petitioners’
Federal income taxes of $74,370 for 1998 and $66,379 for 1999.
Petitioners filed a timely petition.
OPINION
The issues to be decided are, first, whether petitioner’s
equipment leasing activity was engaged in for profit under
section 183, and second, whether the equipment leasing activity
qualifies for the incidental activity exception under section
469.6
6The Commissioner’s determinations in a deficiency notice
are generally presumed correct, and the taxpayer bears the burden
(continued...)
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