William C. and Cheryl M. Fowler - Page 9




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          public accountant.  Miller discussed with petitioner the                    
          qualifications and definition of a real estate professional for             
          purposes of section 469(c)(7), and he inquired about petitioner’s           
          involvement in United Air Temp and petitioners’ involvement in              
          their real estate rental activities.  Form 8275-R, Regulation               
          Disclosure Statement, was prepared and filed with petitioners’              
          1994 Federal income tax return to disclose that petitioners were            
          taking a position inconsistent with that of the Internal Revenue            
          Service with regard to interest paid on tax deficiencies.                   
                                       OPINION                                        
          Rental Properties                                                           
               The deductibility of the losses from petitioners’ rental               
          properties depends on:  (1) Whether petitioner qualifies as a               
          real estate professional under section 469(c)(7) and, if so,                
          (2) whether petitioner materially participated in each rental               
          activity.                                                                   
               Section 469 generally disallows for the taxable year any               
          passive activity loss.  Sec. 469(a).  A passive activity loss is            
          defined as the excess of the aggregate losses from all passive              
          activities for the taxable year over the aggregate income from              
          all passive activities for that year.  Sec. 469(d)(1).  A passive           
          activity is any trade or business in which the taxpayer does not            
          materially participate.  Sec. 469(c)(1).  Rental activity is                
          treated as a per se passive activity regardless of whether the              






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