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Both parties agree that petitioners’ equipment leasing
activity falls within the definition of a rental activity in
section 469(j)(8), and that the income from that activity is
passive in nature, unless petitioner qualifies under one of the
six exceptions listed in the regulations. See Tarakci v.
Commissioner, T.C. Memo. 2000-358; sec. 1.469-1T(e)(3)(ii)(A)
through (F), Temporary Income Tax Regs., 53 Fed. Reg. 5702 (Feb.
25, 1988). Petitioner specifically relies upon the so-called
incidental exception, which we previously discussed in the recent
and analogous case of Tarakci v. Commissioner, supra, and also
the so-called grouping exception (section 1.469-4(d)(1), Income
Tax Regs.). We agree with petitioner that the incidental
exception and the reasoning of the Tarakci opinion are applicable
here, so we discuss the rules of the grouping exception only
insofar as they relate to the provisions of the incidental
exception.
Petitioners’ position is that their leasing activity is not
a rental activity because it qualifies as an exception to the
definition of a rental activity under section 1.469-1T(e)(3)
(ii)(D), Temporary Income Tax Regs., 53 Fed. Reg. 5702 (Feb. 25,
1988),5 which, together with paragraph (e)(3)(vi), provides that
5Temporary regulations are entitled to the same weight as
final regulations with respect to the years to which they apply.
Nissho Iwai Am. Corp. v. Commissioner, 89 T.C. 765, 776 (1987).
Sec. 1.469-1T, Temporary Income Tax Regs., 53 Fed. Reg. 5700-5711
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