- 15 -
mean the trade or business of the partnership).
To gain entitlement to the “incidental” exception,
petitioner must pass a three-part test. The first part requires
petitioner to own an interest in Aeternum during 1993.
Petitioner was a 50-percent owner of Aeternum from October of
1990 until the partnership was effectively dissolved in August of
1993. The second part requires a finding that the equipment was
predominantly used by Aeternum during 1993 or during at least two
of the previous 5 taxable years. The evidence shows that
Aeternum relied on Cilena’s equipment to manufacture products for
the period 1990 through April of 1993 and that the equipment was
an integral part of the partnership business. The final part
requires that petitioner’s gross rental income from the equipment
leasing activity be less than 2 percent of the lesser of the
unadjusted basis of the equipment and the fair market value of
the equipment. Petitioner reported zero gross rental income from
the equipment for 1993, as well as for the previous taxable years
during which the equipment lease was in effect. The evidence in
the record reflects that the equipment had an unadjusted basis
and fair market value above zero. Respondent, who carries the
burden of proof as to this issue, has failed to present evidence
that petitioner received gross rental income and has also failed
to establish the unadjusted basis or fair market value of the
equipment. We hold that the “incidental” exception set forth in
Page: Previous 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 NextLast modified: May 25, 2011