Douglas and Carole Ritter - Page 5

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          by a taxpayer in an activity involving the conduct of a trade or            
          business “which is not a passive activity” and with respect to              
          which the taxpayer does not “materially participate”, as the                
          terms are used in section 469.  Sec. 163(d)(5)(C).                          
               Respondent agrees that the interest paid to Wilmington Trust           
          is interest on petitioner’s investment in silver coins.                     
          Respondent contends, however, that petitioners’ deduction is                
          limited to the amount of the “investment income”, which is zero.            
          Petitioners maintain that the net rental income received and                
          reported on Schedule E, Supplemental Income and Loss, constitutes           
          investment income.                                                          
               In this regard, petitioners must contend that, as “property            
          held for investment”, their rental real estate properties were              
          held in a trade or business activity “with respect to which * * *           
          [petitioner] does not materially participate.”  Sec.                        
          163(d)(5)(A)(ii)(II).  Material participation is defined by                 
          section 469(h)(1) as an involvement in the operation of the                 
          activity on a regular, continuous, and substantial basis.  See              
          also sec. 1.469-5T, Temporary Income Tax Regs., 53 Fed. Reg. 5727           
          (Feb. 25, 1988).  By his own admission, petitioner spends over 30           
          hours per week operating and maintaining the rental apartments,             
          and he is responsible for all the administrative duties                     
          associated with the rental properties.  From the facts in this              
          record it is clear that petitioner materially participates in the           

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