- 18 - evidence. See Ware v. Commissioner, 92 T.C. 1267, 1268 (1989), affd. 906 F.2d 62 (2d Cir. 1990). It is clear that petitioners did not provide notice in their petition of an intent to challenge the extent of petitioner’s participation in BMS. Their petition states their disagreement with respondent’s determination in the notice of deficiency solely as follows: We disagree with the adjustment based on Reg. Sec. 1.469-11(c)(1)(ii). The income from the “1203 Partnership” was attributable to the rental of property pursuant to a written binding contract entered into before February 19, 1988, and thus was properly reported as passive income. Petitioners never amended their petition to raise or assert any other issue. No pretrial memoranda were filed by either party. Counsel for petitioners first raised the issue of petitioner’s participation in BMS in his opening statement. Nevertheless, petitioners argue that respondent should have been on notice that petitioner’s participation in BMS was at issue because petitioners stipulated that petitioner was a material participant in the PC but did not make such a stipulation with regard to BMS. Although the recharacterization rule applies only to a taxpayer’s rental income from property rented for use in a trade or business in which the taxpayer materially participates, see sec. 1.469-2(f)(6), Income Tax Regs., rules governing the grouping of activities prohibit a partner from treatingPage: Previous 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Next
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