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that petitioner did spend at least 500 hours each year in
conjunction with the activity.
Petitioner claimed losses from his aircraft leasing
activities in the amounts of $11,274 and $27,014 for 1993 and
1994, respectively. Respondent disallowed those losses as
passive activity losses.
Discussion
Section 162 allows deductions for ordinary and necessary
expenses incurred in carrying on a trade or business. Section
212 allows deductions for ordinary and necessary expenses
incurred for the production of income or the management or
maintenance of property held for the production of income.
Section 469, however, limits the deductions for losses from any
"passive activity".
A passive activity is any activity involving the conduct of
a trade or business in which the taxpayer does not materially
participate. See sec. 469(c)(1)(A) and (B). All rental
activities are generally passive. See sec. 469(c)(2).
Furthermore, a rental activity is passive whether or not the
taxpayer materially participates. See sec. 469(c)(4); Frank v.
Commissioner, T.C. Memo. 1996-177. An activity is a rental
activity if (1) during the taxable year the tangible property
held in connection with the activity is used or held for use by
customers and (2) the gross income attributable to the conduct of
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