- 16 -
arrived. Mrs. Koenig would sometimes perform these tasks herself
or would make arrangements for the services to be performed.
Petitioners assert that they are entitled to the full amount
of the rental loss because they were actively engaged in the
trade or business of renting real property. Accordingly, they
argue their loss is fully deductible under section 162 because
the expenses were incurred in their rental property trade or
business.5
Section 162(a) provides in relevant part that "There shall
be allowed as a deduction all the ordinary and necessary expenses
paid or incurred during the taxable year in carrying on any trade
or business". The regulations promulgated thereunder state that
only those ordinary and necessary business expenses "directly
connected with or pertaining to the taxpayer's trade or business"
may be deducted. Sec. 1.162-1(a), Income Tax Regs.
Section 469(a) generally disallows all passive activity
losses. The term "passive activity" includes any rental
activity. Sec. 469(c)(2). Section 469(i) provides an exception,
however, to this complete disallowance. Section 469(i) allows a
taxpayer who "actively participates" in a rental activity to
5 Petitioners originally argued that they were entitled
to the full amount of the claimed loss pursuant to sec.
469(c)(7). The year in issue is 1990. Sec. 469(c)(7) did not
become effective until taxable years beginning after Dec. 31,
1993. See Omnibus Budget Reconciliation Act of 1993, Pub. L.
103-66, sec. 13143(a), 107 Stat. 312, 440.
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