17
his relationship to petitioners was adverse by the time of trial,
he did not dispute Kane's testimony. Petitioners, however, bear
the burden of proving that the $2,000 expense was an ordinary and
necessary business expense, and they did not ask Wade about this
issue.
Kane testified that he did not know whether Bob Wade Ford
issued Forms W-2 to employees for the bonuses. Petitioners have
not proven that Bob Wade Ford is entitled to deduct this amount
because petitioners had no Forms W-2 or other evidence
corroborating that Bob Wade paid the $2,000 to employees. Bob
Wade Ford's loss for 1988 is thereby decreased by $2,000.
d. Conclusion
We conclude that Bob Wade Ford had losses of $254,752 in
1988 and $133,709 in 1989.
3. Passive Loss Limitations: Whether Petitioner
Materially Participated in the Management of Bob Wade
Ford
The next issue for decision is whether the losses
petitioners claimed from Bob Wade Ford are passive activity
losses under section 469. More specifically, we must decide
whether petitioner materially participated in the business of Bob
Wade Ford.
Individuals generally may not deduct losses from a passive
activity. Sec. 469(a). A passive activity is a trade or
business in which the taxpayer does not materially participate.
Sec. 469(c)(1). An individual materially participates in an
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