Walter A. Barniskis and Mary Sue Barniskis - Page 7

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          activities such as attending board meetings and/or making some              
          repairs to their unit.  Petitioner husband also attended several            
          BBCA meetings in St. Paul, Minnesota, during the taxable years in           
          issue.  Petitioners sold their unit on or about October 31, 1997.           
               On Schedules C attached to their 1991, 1992, and 1993                  
          returns, petitioners reported the following amounts with respect            
          to the rental of their unit:                                                
                                   1991        1992      1993                         
               Gross Income        $36,554   $40,202   $38,029                        
               Total Expenses      (46,096) (50,360) (46,454)                         
               Net Loss            (9,542) (10,158)  (8,425)                          
               Petitioners claimed business loss deductions on their 1991,            
          1992, and 1993 returns in amounts equal to the amounts of their             
          net losses reported on the Schedules C.  In the statutory notice            
          of deficiency, respondent disallowed the claimed business loss              
          deductions on the ground that the losses were sustained in                  
          connection with an activity in which petitioners did not                    
          materially participate.                                                     
               Section 469 generally disallows for the taxable year any               
          passive activity loss that exceeds passive activity income.  See            
          sec. 469(a), (d)(1).  A passive activity is any activity which              
          involves the conduct of any trade or business in which the                  
          taxpayer does not materially participate.2  See sec. 469(c)(1).             

          2         The term "passive activity" also includes any "rental             
          activity", regardless of whether the taxpayer materially                    

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