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interest as offsetting self-charged items for purposes of section
469.1
Background2
Petitioners resided in Bethesda, Maryland, at the time their
petition was filed. During the 1993 calendar year, David H.
Hillman (petitioner) owned 100 percent of the stock of Southern
Management Corporation (SMC). During the 1994 calendar year,
petitioner owned 94.34 percent of SMC’s stock. SMC was
classified as an S corporation during the 1993 and 1994 taxable
years. SMC provided real estate management services to
approximately 90 passthrough entities (including joint ventures,
limited partnerships, S corporations) that were involved in real
estate rental activities (partnerships). Petitioner owns, either
directly or indirectly, interests in each of the partnerships.
The general partner of each partnership is either petitioner or
an upper tier partnership or S corporation in which petitioner
owns an interest.
During the 1993 and 1994 taxable years, petitioners did not
participate in the activities of the partnerships. Petitioners
did, however, participate in the activities of SMC by performing
management services that SMC had contracted to perform for the
1 All section references are to the Internal Revenue Code in
effect for the taxable years in issue.
2 This case was submitted fully stipulated.
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