David H. and Suzanne Hillman - Page 1

                                   118 T.C. No. 17                                    

                               UNITED STATES TAX COURT                                

                    DAVID H. AND SUZANNE HILLMAN, Petitioners v.                      
                    COMMISSIONER OF INTERNAL REVENUE, Respondent*                     

               Docket No. 19893-97.            Filed April 9, 2002.                   

                    P’s S corporation (S) performed management                        
               services for real estate partnerships in which P had                   
               direct and indirect interests.  P actively participated                
               in S by performing management services that S had                      
               contracted to perform for the partnerships.  P was not                 
               an active participant in any of the partnerships.  On                  
               the Schedule K-1 issued to P from S, P’s portion of the                
               management income was reduced by the portion of the                    
               corresponding management fee expense paid by the                       
               partnerships to S in an amount proportionate to P’s                    
               ownership percentage in each partnership.  The                         
               reduction from the management income was treated as a                  
               loss from a trade or business.  R disallowed the                       
               management fee expense deductions on the grounds that                  
               the expenses were passive within the meaning of sec.                   
               469, I.R.C., and that P was not entitled to treat the                  

               *This Opinion supplements a previously released opinion:               
          Hillman v. Commissioner, 114 T.C. 103 (2000).                               

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