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Sec. 1.469-1T(e)(3)(i)(A), (B), Temporary Income Tax Regs., 53
Fed. Reg. 5702 (Feb. 25, 1988).
Petitioners leased the plane to GAPA and SAFT. GAPA and
SAFT rented the plane to customers who were learning to fly.
The airplane was held by GAPA and SAFT for use by customers.
The amounts to be paid to petitioners by GAPA and SAFT were for
the use of the airplane. Services were not the dominant element
of the relationship. This is a rental activity for purposes of
section 469. Rental activity is passive whether or not the
taxpayer materially participates in it. Sec. 469(c)(4).
Petitioners may not use the $25,000 offset under section 469(i)
because it applies only to rental real estate activities. We
hold that losses from petitioner's airplane leasing activity are
passive losses.
E. Whether Petitioners Are Liable for Accuracy-Related
Penalties
Taxpayers are liable for the accuracy-related penalty on any
part of an underpayment which is due to negligence. Sec.
6662(b)(1) and (c). Negligence is the lack of due care or the
failure to do what a prudent person would do under the
circumstances. Sec. 6662(c); Norgaard v. Commissioner, 939 F.2d
874, 880 (9th Cir. 1991), affg. in part and reversing in part
T.C. Memo. 1989-390; Zmuda v. Commissioner, 731 F.2d 1417, 1422
(9th Cir. 1984), affg. 79 T.C. 714 (1982). Negligence includes
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