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the years in question), includes any rental activity, regardless
of whether the taxpayer materially participates in such rental
activity. Sec. 469(c)(2) and (4). (We note that, effective for
taxable years beginning after December 31, 1993, section
469(c)(2) has been modified by the provision of special rules in
section 469(c)(7) for taxpayers in the real property business.
Omnibus Budget Reconciliation Act of 1993, Pub. L. 103-66, sec.
13143(a), 107 Stat. 312, 440.)
Respondent's principal argument is that the section 469
issue is more appropriately determined at the partnership level
and is therefore subject to computational adjustment. Sec.
6231(a)(3), (6). In that connection, respondent claims to have
erred in abating the assessments for 1989 and 1990; that the
penalties determined in the March 14, 1997, notices are both
timely and proper; and that new notices of computational
adjustment reassessing deficiencies for those years can be issued
to petitioners.
In arguing that the section 469 issue involves a partnership
item subject to TEFRA adjustment rules, respondent posits that
the Partnership's losses stem from rental activity for the years
in issue, a per se passive activity under section 469(c)(2).
Thus, according to respondent, a partner-level factual
determination as to the extent of petitioners' participation in
the Partnership's activities is unnecessary. (Respondent argues
that no partner-level determination is required even as to the
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