114 T.C. No. 25
UNITED STATES TAX COURT
THOMAS P. AND ERMINA A. KRUKOWSKI, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 7765-98. Filed May 22, 2000.
P was the sole shareholder of two C corporations.
One corporation operated a health club; the other
operated a law firm for which P worked as an attorney.
P realized a loss renting a building to the health
club, and he realized income renting a building to the
law firm. P’s 1994 Federal income tax return reported
that the loss and income were both “passive” under sec.
469, I.R.C., and that the loss offset part of the
income. R disallowed the offset because, R determined,
the recharacterization rule of sec. 1.469-2(f)(6),
Income Tax Regs., deemed the income nonpassive. Held:
The recharacterization rule is valid. Held, further,
the written binding contract exception of sec. 1.469-
11(c)(1)(ii), Income Tax Regs., is inapplicable to the
facts herein. Held, further, the transitional rule of
sec. 1.469-11(b)(1), Income Tax Regs., does not operate
to avoid application of the recharacterization rule.
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