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In enacting section 469, Congress was specifically concerned
with both related party leases and the possibility of abuse by the
formation of closely held corporations. See, e.g., sec. 469(e); S.
Rept. 99-313, at 714 (1986), 1986-3 C.B. (Vol. 3) 1, 713-714; H.
Conf. Rept. 99-841 (Vol. II), at II-147 (1986), 1986-3 C.B. (Vol.
4) 1, 147; 53 Fed. Reg. 5686, 5694 (Feb. 25 1988). On brief,
petitioners assert that no potential for abuse exists in this case
because they own no tax shelters. They claim that their Lawrence,
Massachussetts, properties are the only rental properties they have
and that these properties are either contiguous to or located
across the street from each other. Moreover, petitioners maintain
that ownership of the real properties was separated from the
business of KGR for valid business reasons--to insulate the
properties from potential liabilities arising from the operation of
KGR's business and to insulate KGR from potential liabilities
arising from the ownership of the property. In addressing these
assertions, respondent states on brief:
The petitioners' assertion that no abuse potential
is present in the present case because they own no "tax
shelters" begs the question. Furthermore, the
unquestioned legitimate business needs that prompted the
purchases of the various properties that caused
petitioners to incur losses do not mean that the
petitioners' case is not the sort against which the
strictures of section 469 should be aimed. * * *
The self-rental rule as a matter of administrative
convenience is a bright line rule. The rule does not
look to a taxpayer's motives in structuring transactions.
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