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opinion 111 F.3d 139 (9th Cir. 1997). While the activity was
ultimately not profitable, petitioner’s original intention of
using the equipment for his own business, his noncollection of
rent to promote his interest in Aeternum, his intelligence with
respect to the semiconductor industry and the equipment being
leased, and the absence of elements of personal pleasure or
recreation all indicate that petitioner’s primary purpose was
generating a profit.
II. Section 469
Respondent’s primary argument is that any loss incurred by
petitioner was incurred in a leasing activity and therefore
should be disallowed pursuant to the passive activity loss
limitations of section 469. Because respondent first asserted
the passive loss argument in his amended answer, respondent bears
the burden of proof on this issue. See Rule 142(a); Shea v.
Commissioner, 112 T.C. 183, 191 (1999).
A. Active or Passive Loss
Pursuant to section 469(a), a passive activity loss is
generally not allowed as a deduction for the year in which it is
sustained. A passive activity loss is defined as the excess of
the aggregate losses from all passive activities for the taxable
year over the aggregate income from all passive activities for
that year. See sec. 469(d)(1). Passive activities are those
activities which involve the conduct of a trade or business in
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