Robert Serenbetz and Karen J. Serenbetz - Page 5

          reported rental receipts of $1,814 and expenses of $27,643,                        
          resulting in a loss of $25,829.  In 1992, they had $4,368 in rental                
          receipts and $28,353 in expenses, resulting in a loss of $23,985.                  
          Petitioners used these losses to offset other income.  In 1991 and                 
          1992, petitioners reported taxable income of $3,925,065 and                        
          $307,638, respectively.  Respondent determined that the losses from                
          the Vermont condominium constitute passive activity losses within                  
          the meaning of section 469(a) and accordingly disallowed most of                   
          the losses in the years under consideration.                                       
                Pursuant to section 469(a), a passive activity loss is                       
          generally not allowed as a deduction for the year sustained.                       
          Section 469(d)(1) defines a passive activity loss as the amount by                 
          which (A) the aggregate losses from all passive activities for the                 
          taxable year exceed (B) the aggregate income from all passive                      
          activities for such year.  Passive activities are those activities                 
          which involve the conduct of a trade or business in which the                      
          taxpayer does not materially participate. Sec. 469(c)(1).  Rental                  
          activity ordinarily is treated as a passive activity irrespective                  
          of whether there was material participation.  Sec. 469(c)(2), (4).                 
          However, an exception exists for rental activity in which the                      
          average rental is no more than 7 days.  Sec. 1.469-1T(e)(3)(ii)(A),                
          Temporary Income Tax Regs, 53 Fed. Reg. 5702 (Feb. 25, 1988).  In                  
          the instant case, the parties agree that the average rental period                 
          for petitioners' Vermont condominium was less than 7 days.                         

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