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which the taxpayer does not materially participate. See sec.
469(c)(1). Rental activities are presumptively passive, without
regard to whether the taxpayer materially participates in the
activity. See sec. 469(c)(2), (4). Both parties agree that
petitioner’s equipment leasing activity is a rental activity and
that the income therefrom is passive in nature, unless petitioner
qualifies under one of the six exceptions listed in the
regulations. See Welch v. Commissioner, T.C. Memo. 1998-310;
sec. 1.469-1T(e)(3)(ii)(A) through (F), Temporary Income Tax
Regs., 53 Fed. Reg. 5702 (Feb. 25, 1988).
B. Incidental Exception
An activity involving the use of tangible property is not
considered a rental activity if “The rental of such property is
treated as incidental to a nonrental activity of the taxpayer”
for the taxable year. Sec. 1.469-1T(e)(3)(ii)(D), Temporary
Income Tax Regs., supra at 5702. Section 1.469-1T(e)(3)(vi)(C),
Temporary Income Tax Regs., 53 Fed. Reg. 5703 (Feb. 25, 1988),
provides, in pertinent part:
(C) Property used in a trade or business. The
rental of property during a taxable year shall be
treated as incidental to a trade or business activity
(within the meaning of paragraph (e)(2) of this
section) if and only if--
(1) The taxpayer owns an interest in such
trade or business activity during the taxable
year;
(2) The property was predominantly used in
such trade or business activity during the taxable
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