Chester F. and Faye L. Sidell - Page 3

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               The deficiencies stem from respondent's recharacterizing the           
          income Chester F. Sidell (Mr. Sidell) received from the rental of           
          properties to his wholly owned C corporation from passive to                
          nonpassive.    Respondent now concedes the accuracy-related penalty         
          under section 6662(a) for 1994.                                             
               The issues for decision are: (1) Whether respondent's                  
          recharacterization of the rental income Mr. Sidell received from            
          his wholly owned C corporation was proper; and if so, (2) whether           
          respondent properly disallowed the rehabilitation credits                   
          petitioners claimed for those years.                                        
               All section references are to the Internal Revenue Code as in          
          effect for the years in issue.                                              
                                  FINDINGS OF FACT                                    
               Some of the facts have been stipulated and are so found.  The          
          stipulation of facts and the exhibits submitted therewith are               
          incorporated herein by this reference.                                      
               Petitioners, husband and wife, resided in Framingham,                  
          Massachusetts, at the time they filed their petition contesting             
          respondent's determinations.  For both years in issue, petitioners          
          filed joint Federal income tax returns.                                     
          Acquisition of Rental Properties                                            
               Mr. Sidell was the sole beneficiary of five trusts:  The               
          Manche Realty Trust, CFS Realty Trust, FLS Realty Trust, GES Realty         
          Trust, and RMS Realty Trust. All five trusts are nominee trusts             

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