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petitioner was not a material participant in BMS. See 1.469-
5T(a), Temporary Income Tax Regs., 53 Fed. Reg. 5725-5726 (Feb.
25, 1988).
Regardless of whether petitioner materially participated in
BMS, petitioners have not provided any evidence that the 1203
Partnership treated their rentals to the PC and to BMS as
separate activities. If the 1203 Partnership grouped its rentals
to the PC and to BMS as a single activity, petitioners may not
treat the income from the rentals as from two separate
activities. See sec. 1.469-4(c)(5), Income Tax Regs. Under the
general rules for grouping activities, one or more rental
activities may be treated as a single activity if the activities
constitute an appropriate economic unit for the measurement of
gain or loss for purposes of section 469. See 1.469-4(c)(1),
Income Tax Regs. The facts and circumstances used to determine
whether activities constitute an appropriate economic unit all
point toward the two rentals’ being considered one economic unit.
See sec. 1.469-4(c)(2), Income Tax Regs.
Accordingly, we uphold respondent’s determination that all
of petitioners’ income from the 1203 Partnership is not from a
passive activity pursuant to the recharacterization rule of
section 1.469-2(f)(6), Income Tax Regs.
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