- 4 -
partnerships. SMC engaged in real estate management activity
which was treated by petitioners as a separate activity, not
aggregated with any other activities carried on by SMC. During
the 1993 and 1994 taxable years, petitioner materially
participated in SMC’s real estate management activity in excess
of 500 hours. During the 1993 and 1994 taxable years, SMC also
conducted other operations in addition to real estate management
services, such as recreational services, medical insurance plan
underwriting, credit/collection services, and a maintenance
training academy. Petitioner did not materially participate in
any of these other operations of SMC.
Petitioners reported as salary (income), and SMC deducted as
an expense, compensation paid to petitioners for services related
to the conduct of the real estate management activity for the
1993 and 1994 taxable years. SMC separately reported management
fee income (after deduction of expenses) on petitioners’ 1993 and
1994 Schedules K-1. The portion of the management fee paid by
the partnerships to SMC (and allocable to petitioner’s ownership
percentage in each partnership) was deducted and resulted in
ordinary losses from trade or business on either petitioner’s
Schedules K-1 for the 1993 and 1994 taxable years or on the
Schedules K-1 of upper tier partnerships and S corporations for
the 1993 and 1994 taxable years. In computing their taxable
income for the 1993 and 1994 years, petitioners treated the total
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011