- 43 -
income-producing factor. Nor has that phrase in the regulations
under section 469 been construed by the courts. However, courts
have faced the question of whether capital is a material income-
producing factor in other contexts. See, e.g., Friedlander v.
United States, 718 F.2d 294 (9th Cir. 1983); Gord v. Commission-
er, 93 T.C. 103 (1989); Moore v. Commissioner, 71 T.C. 533
(1979). In those other contexts, the courts have followed the
general rule that capital is a material income-producing factor
if a substantial portion of the gross income of the business is
attributable to the employment of capital in the business, which
is likely to be the case if the operation of the business re
quires substantial inventories or substantial investments in
plant, machinery, or other equipment. See, e.g., Moore v. Com-
missioner, supra at 538. Capital is not a material income-
producing factor if the gross income of the business consists
principally of fees, commissions, or other compensation for
personal services. Id.
On the instant record, we find that petitioner's rental
activity at Crestwood is not a personal service activity within
the meaning of section 1.469-5T(d), Temporary Income Tax Regs.,
supra, even though it involved the furnishing of certain hotel-
type services to patrons (e.g., on-site management, daily house-
keeping service, and 24-hour switchboard service). Petitioner's
rental activity at Crestwood did not involve the performance of
personal services in the fields that are specifically identified
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