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OPINION
Petitioners bear the burden of proving that respondent's
determination is erroneous. Rule 142(a); Welch v. Helvering, 290
U.S. 111, 115 (1933).
Section 162 permits deductions for all the ordinary and
necessary expenses paid or incurred during the taxable year in
carrying on a trade or business. Section 212 permits deductions
for all the ordinary and necessary expenses paid or incurred
during the taxable year for the production of income. Section
469, however, limits the deductions for losses from a "passive
activity". Chapin v. Commissioner, T.C. Memo. 1996-56. In
Mordkin v. Commissioner, T.C. Memo. 1996-187 (a case involving an
owner of a condominium at Snowmass Village, Colorado), we
described the operation of section 469 as follows:
the passive activity loss for the taxable year is
generally the amount, if any, by which the passive
activity deductions for the taxable year exceed the
passive activity gross income for such year. Sec.
469(d)(1); sec. 1.469-2T(b)(1), Temporary Income Tax
Regs., 53 Fed. Reg. 5711 (Feb. 25, 1988).
As pertinent here, section 469(c) defines the term
"passive activity" to include: (1) Any activity which
involves the conduct of any trade or business and in
which the taxpayer does not materially participate,
sec. 469(c)(1), and (2) any rental activity without
regard to whether or not the taxpayer materially
participates in the activity, sec. 469(c)(2), (4).
For purposes of section 469(c)(1), the term "trade
or business" is defined in section 469(c)(6) to include
any activity in connection with a trade or business or
any activity with respect to which expenses are
allowable as a deduction under section 212.
For purposes of section 469(c)(2), the term
"rental activity" is defined in section 469(j)(8) as
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Last modified: May 25, 2011