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an activity involving the use of tangible property is not a
rental activity if the rental of such property is treated as
incidental to a nonrental activity of the taxpayer. Section
1.469-1T(e)(3)(vi)(C), Temporary Income Tax Regs., 53 Fed. Reg.
5703 (Feb. 25, 1988), provides:
(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 year or during at least
two of the five taxable years that
immediately precede the taxable year; and
(3) The gross rental income from such
property for the taxable year is less than
two percent of the lesser of-–
(i) The unadjusted basis of
such property; and
(ii) The fair market value
of such property.
With respect to the application of the three tests of
subdivision (C), we consider it significant that the parties have
stipulated that during 1996: (1) Petitioner owned 50 percent of
5(...continued)
(Feb. 25, 1988), is effective for taxable years beginning after
Dec. 31, 1986. Sec. 1.469-11(a)(2), Income Tax Regs., 53 Fed.
Reg. 5686 (Feb. 25, 1988).
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