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For both years at issue, the Project had no gross income,
because Associates' cost of goods sold exceeded its gross
receipts on Project sales. See Beatty v. Commissioner, 106 T.C.
268, 273 (1996); supra pp. 3-4. Because the Project had no gross
income, the gross income from the Rental Operations cannot be
less than 20 percent of the Project's gross income, and the
Rental Operation cannot be combined into the active Project
operation.
In 1989, neither operation had any gross income, so the
exception cannot be applied. In 1988, when the Rental Operation
had gross income of $11,366, the Project operation could be
combined, via the de minimis exception and the predominant
character rule of section 1.469-1T(e)(3), Temporary Income Tax
Regs., supra, into the Rental Operation, a result neither party
seeks. Although petitioner attempts to rely upon the de minimis
exception, it would work only to his detriment in this case. Cf.
Moore v. United States, supra at 617.
Additions to Tax and Penalties
For the 1988 taxable year, respondent has determined
additions to tax for delinquency, negligence, and substantial
understatement under sections 6651(a)(1), 6653(a)(1), and 6661.
For the 1989 taxable year, respondent has determined an addition
to tax for delinquency under 6651(a)(1) and a penalty for
negligence under section 6662. Petitioner has the burden of
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