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the trade or business activity must be conducted by the same
entity. In effect, respondent argues that the regulation does
not apply because the equipment leasing activity of petitioners’
sole proprietorship was not incidental to any other trade or
business activity of their sole proprietorship.
We previously ruled on this issue in Tarakci v.
Commissioner, T.C. Memo. 2000-358. There, the taxpayer formed a
sole proprietorship that purchased equipment and leased it to a
general partnership in which the taxpayer and another individual
were equal partners. In the notice of deficiency, the
Commissioner disallowed the taxpayer’s entire loss from his sole
proprietorship on the ground that the loss was subject to the
passive activity loss limitations of section 469. The taxpayer
argued that section 1.469-1T(e)(3)(vi)(C), Temporary Income Tax
Regs., 53 Fed. Reg. 5703 (Feb. 25, 1988), applied, and that for
purposes of that section, the trade or business activities of the
partnership were trade or business activities of the sole
proprietorship. The Commissioner contended that section 1.469-1T
(e)(3)(vi)(C), Temporary Income Tax Regs., 53 Fed. Reg. 5703
(Feb. 25, 1988), did not apply because the equipment leasing
activity of the sole proprietorship was not incidental to any
other activity of the sole proprietorship.
We held that the trade or business activities of the
taxpayer for the year in issue included the trade or business
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