- 44 -
in that regulation. We further find on the record before us that
that activity necessarily employed capital as a substantial,
material income-producing factor. In other words, a substantial
portion of the gross income of petitioner's rental activity at
Crestwood was attributable to his capital investment in his two
condominium units, the furnishings in those units, and the common
elements of Crestwood consisting of the land, buildings, and
other physical facilities of Crestwood. Consequently, we find
that petitioners have failed to establish that petitioner is to
be treated as having materially participated during each of the
years at issue in his rental activity at Crestwood under section
1.469-5T(a)(6), Temporary Income Tax Regs., supra.24
Section 1.469-5T(a)(7), Temporary Income Tax Regs.
Petitioners claim that petitioner should be treated as
having materially participated in his rental activity at Crest-
wood for each of the years at issue under section 1.469-5T(a)(7),
Temporary Income Tax Regs., supra (facts and circumstances test)
because, based on all of the facts and circumstances, he was
involved in that activity on a regular, continuous, and substan-
tial basis during each such year. Respondent disagrees with that
contention.
24 Since petitioners have failed to satisfy the first prong of
the test under sec. 1.469-5T(a)(6), Temporary Income Tax Regs.,
53 Fed. Reg. 5726 (Feb. 25, 1988), we need not, and do not,
address whether petitioners satisfy the second prong of that
test, i.e., whether petitioner materially participated in that
activity for any three taxable years (whether or not consecutive)
preceding each of the taxable years at issue.
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