- 3 -
Due to the reversal, we must now consider petitioners’
alternative argument concerning whether they correctly reported
the management fee items. In general we consider whether
petitioners’ reporting position should be sustained. Petitioners
contend that the real estate activity of the passthrough entities
may be segregated into separate rental and trade or business
activities; i.e., passive and nonpassive.
Background3
During 1993 and 1994 David H. Hillman (petitioner) owned 100
percent and 94.34 percent, respectively, of the stock of Southern
Management Corporation (SMC). SMC, an S corporation, provided
real estate management services to approximately 90 passthrough
entities (including joint ventures, limited partnerships, and S
corporations) that were involved in real estate rental activities
(passthrough entities). Petitioner held direct and indirect
interests in the passthrough entities. The general partner of
each partnership is either petitioner or an upper tier
partnership or S corporation in which petitioner owns an
interest.
2(...continued)
one that only “Congress or the Secretary (as the holder of the
delegated authority from Congress) has the authority to
ameliorate.” Id. at 234.
3 This case was submitted fully stipulated, and the factual
background discussed in Hillman v. Commissioner, 114 T.C. 103
(2000), is incorporated by this reference.
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