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whether the portion of rental income attributable to the BMS
lease is exempt from recharacterization.
Material participation is defined as involvement in the
operations of an activity on a regular, continuous, and
substantial basis. See sec. 469(h)(1). A taxpayer materially
participates in an activity if he satisfies one of seven tests
provided in the regulations. See sec. 1.469-5T(a), Temporary
Income Tax Regs., 53 Fed. Reg. 5725 (Feb. 25, 1988); see also
Mordkin v. Commissioner, T.C. Memo. 1996-187.
Matthew Shonsey was petitioners’ sole witness. When asked
whether he was familiar with the people who rendered “services
for Business Management Services to its clients”, he identified
four individuals as “programmers that rendered the major
services.” Mr. Shonsey then was asked whether petitioner ever
rendered any services for BMS. He responded “No.” He further
testified that BMS does not have the same officers and directors
as the PC; however, he did not indicate whether petitioner was a
director or officer of BMS.
We are not persuaded by Mr. Shonsey’s testimony that
petitioner did not provide any services for BMS. It is unclear
whether Mr. Shonsey intended to testify that petitioner did not
render services for BMS’s clients or whether he did not provide
any services for BMS. Further, he failed to provide specific
information about the management of BMS. Under these
circumstances, petitioners have failed to establish that
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