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involved in the operations of the activity on a basis which is *
* * regular, * * * continuous, and * * * substantial”.4 Section
1.469-2(f)(6)(i), Income Tax Regs., provides in relevant part
that rental income is recharacterized as nonpassive income if the
underlying property “Is rented for use in a trade or business
activity * * * in which the taxpayer materially participates”,
sec. 1.469-2(f)(6)(i), Income Tax Regs.
Nowhere in section 469 or the regulations thereunder do we
read, as petitioner asks us to hold, that an individual’s
“regular”, “continuous”, and “substantial” involvement in the
operations of an activity is not treated as materially
participating in that activity when the activity is operated by a
C corporation. Petitioner correctly observes that the Secretary
had set forth such an exception in two sets of temporary
regulations that he had prescribed before 1992. In 1988, the
Secretary prescribed section 1.469-5T(f)(1), Temporary Income Tax
Regs., 53 Fed. Reg. 5686, 5726 (Feb. 25, 1988), (the 1988
4 Although we understand the words “regular”, “continuous”,
and “substantial” to support a finding that petitioner materially
participated in the law firm’s business activity, we note that
petitioner also meets the definition of the term “material
participation” as set forth in the applicable regulations. Sec.
1.469-5T(a) and (d), Temporary Income Tax Regs., 53 Fed. Reg.
5686 (Feb. 25, 1988) (an individual materially participates in an
activity if, inter alia, he or she participates in an activity
for more than 500 hours in the taxable year, he or she
participates in the activity for more than 100 hours in the
taxable year and no other individual spends more time in the
activity, or the activity involves the performance of legal
services and the individual had materially participated in the
activity during any 3 years prior to the year in question).
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