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recharacterization rule of section 1.469-2(f)(6), Income Tax Regs.,
nor the attribution rule of section 1.469-4(a), Income Tax Regs.,
is invalid because of an alleged failure to comply with the
procedural notice and comment requirements of the Administrative
Procedure Act, 5 U.S.C. sec. 553(b) and (c) (1994), with respect to
section 1.469-4(a), Income Tax Regs.
It was envisioned that by promulgating regulations regarding
"related party leases or sub-leases", the Secretary would be acting
consistently with section 469. See Fransen v. United States, 82
AFTR 2d 6621, 98-2 USTC par. 50776 (E.D. La. 1998) (quoting H.
Conf. Rept. 99-841 (Vol. II), at II-146 (1986), 1986-3 C.B. (Vol.
4) 1, 147). The court in Fransen (in granting summary judgment for
the Government) upheld the Commissioner's determination that rental
income received by the taxpayer husband, an attorney, from his
3(...continued)
taxpayer husband (Dr. Schwalbach) practiced dentistry and was
employed by a personal service corporation (Associated Dentists)
he owned equally with another dentist. Dr. Schwalbach owned a
building that he rented to Associated Dentists for use in its
dentistry practice. The taxpayers reported $50,556 in 1994 as
the net income from the rental of the building to Associated
Dentists. The taxpayers attempted to offset this income with
certain losses derived from unrelated activities, namely: (a) A
rental loss from a commercial building apparently rented to an
unrelated tenant; (b) a passive loss from an investment in an S
corporation unrelated to the dentistry practice; and (c) a
passive loss from an investment in a partnership also unrelated
to the dentistry practice. In the aggregate, the losses claimed
totaled $18,115. The Commissioner applied the self-rented
property rule and thereby disallowed the losses. We sustained
the Commissioner's determination.
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