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in connection with a passive 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).
In general, section 469(h)(1) provides that a taxpayer shall
be treated as materially participating in an activity only if the
taxpayer is involved in the operations of the activity on a basis
which is regular, continuous, and substantial. Section 469(l)
authorizes the Secretary to prescribe regulations as may be
necessary or appropriate to carry out the provisions of section
469, including regulations which specify what constitutes
material participation. Sec. 469(l)(1).
Section 1.469-5T(a), Temporary Income Tax Regs., 53 Fed.
Reg. 5725-5726 (Feb. 25, 1988), provides that an individual will
2 The term "passive activity" also includes any "rental
activity", regardless of whether the taxpayer materially
participates in the activity. Sec. 469(c)(2), (4). A rental
activity is any activity where payments are principally for the
use of tangible property. See sec. 469(j)(8). However,
petitioners' activity does not constitute a rental activity
within the meaning of sec. 469(j)(8) because the average customer
stay at their unit was less than 7 days. See sec. 1.469-
1T(e)(3)(ii)(A), Temporary Income Tax Regs., 53 Fed. Reg. 5702
(Feb. 25, 1988).
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