Phillip A. O'Bryon and Cyndie W. O'Bryon - Page 28

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          ground that Phillip's partnership interest had not been fully               
          disposed of at the end of each year in issue.                               
               Petitioners' representative submitted a protest dated                  
          January 2, 1996, claiming that the partnership had ceased to                
          exist at the end of 1991, and that Phillip had disposed of his              
          entire interest in the partnership.  Respondent dismissed the               
          argument and maintained the position that Phillip had not                   
          completely disposed of his partnership interest.  Respondent                
          conceded this issue, however, after petitioners' counsel                    
          presented the same argument and resubmitted the January 2, 1996,            
          protest.  The parties' settlement of March 20, 2000, reflects               
          this concession by respondent.                                              
               Section 469 limits a taxpayer's ability to deduct losses               
          from passive activities.  Generally, a taxpayer may deduct losses           
          from passive activities from income from passive activities only            
          and may not use such losses to offset income from nonpassive                
          activities.  See sec. 469(a), (d).  Passive activity includes any           
          rental activity.  See sec. 469(c)(2).                                       
               Section 469(g)(1) provides for an exception to this passive            
          activity loss disallowance rule:  If the taxpayer disposes of his           
          or her entire interest in any passive activity in a fully taxable           
          transaction between unrelated parties, any loss from that                   
          activity is not treated as from a passive activity.                         

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