Chester F. and Faye L. Sidell - Page 11

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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              

          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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