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management income, are a part of a separate trade or business of
the real estate entities. It should be noted that the management
fee deduction, as it related to taxpayers other than petitioner
(partners and interest holders in the same pass-through
entities), was treated as part of the passive income regime.
Accordingly, we must decide whether the deducted portion of
the passthrough entities’ management fee deductions constitutes a
separate “trade or business”; i.e., are nonpassive deductions.
Section 1.469-4(b),6 Income Tax Regs., contains the following
definition of “trade or business activities” for purposes of
section 469:
(1) Trade or business activities. Trade or
business activities are activities, other than rental
activities or activities that are treated under sec.
1.469-1T(e)(3)(vi)(B) as incidental to an activity of
holding property for investment, that–-
(i) Involve the conduct of a trade or business
(within the meaning of section 162);
(ii) Are conducted in anticipation of the
commencement of a trade or business; or
(iii) Involve research or experimental
expenditures that are deductible under section 174
* * * .
To be engaged in a trade or business within the meaning of
section 162, a “taxpayer must be involved in the activity with
continuity and regularity and * * * the taxpayer’s primary
6 These regulations were amended in 1995, but they were
intended to apply retroactively to the years before the Court.
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