Stephen and Ann Schwalbach - Page 2

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                    Held:  R complied with the notice and comment                     
               requirements of the APA, id., when R prescribed sec.                   
               1.469-4(a), Income Tax Regs., and neither that section                 
               nor sec. 1.469-2(f)(6), Income Tax Regs., is invalid                   
               due to a lack of compliance with those requirements.                   
               Jay B. Kelly, for petitioners.                                         
               Blaine C. Holiday, for respondent.                                     

               LARO, Judge:  Petitioners petitioned the Court to                      
          redetermine respondent's determination of an $11,869 deficiency             
          in their 1994 Federal income tax and a $2,374 accuracy-related              
          penalty under section 6662(a).  Following concessions by                    
          petitioners, the primary issue left to be decided is whether                
          sections 1.469-2(f)(6) and 1.469-4(a), Income Tax Regs., are                
          valid as applied to recharacterize the rental income of an                  
          individual who rents property to a personal service corporation             
          for use in a business in which the individual materially                    
          participates.  We hold they are.  We also decide whether                    
          petitioners are liable for the accuracy-related penalty                     
          determined by respondent.  We hold they are not.  Unless                    
          otherwise indicated, section references are to the Internal                 
          Revenue Code in effect for the subject year.  Rule references are           
          to the Tax Court Rules of Practice and Procedure.  Dollar amounts           
          are rounded to the nearest dollar.                                          
                                  FINDINGS OF FACT                                    
               Some facts have been stipulated.  The stipulations of fact             
          and the exhibits submitted therewith are incorporated herein by             

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