- 5 -
(7) Based on all of the facts and circumstances
* * *, the individual participates in the activity on a
regular, continuous, and substantial basis during such
year. [Sec. 1.469-5T(a)(2), (3), and (7), Temporary
Income Tax Regs., 53 Fed. Reg. 5725-5726 (Feb. 25
1988)].
To meet the material participation test under paragraph (a)(7),
an individual must participate in the activity for more than 100
hours. Sec. 1.469-5T(b)(2)(iii), Temporary Income Tax Regs., 53
Fed. Reg. 5726 (Feb. 25, 1988).
Petitioners have failed to establish that they materially
participated in the charter activity. Petitioners entered into
an agreement with the broker that gave the broker all day-to-day
management responsibilities, including taking all necessary steps
to charter the yacht. Petitioners failed to devote 100 hours to
their activity in 1993 and while petitioners devoted 194 hours to
their activity in 1994, only 84 of such hours relate to the
period when the yacht was available for charters. Assuming
arguendo that petitioners did devote more than 100 hours to their
activity in 1994, they have not established that such
participation was greater than the broker's participation. In
essence, petitioners' participation was limited to routine
maintenance of the yacht and was not substantial. Therefore, we
conclude that petitioners did not materially participate in their
chartering activity. Cf. Chapin v. Commissioner, T.C. Memo.
1996-56; Goshorn v. Commissioner, T.C. Memo. 1993-578.
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