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purpose for engaging in the activity must be for income or
profit.” Commissioner v. Groetzinger, 480 U.S. 23, 35 (1987).
In order to hold for petitioners on this argument we would have
to decide that the real estate entities’ payment of management
fees, by itself, constituted a trade or business and/or an
activity separate from the real estate rental activity in which
they were engaged.
On the facts presented, we hold that the payment of
management fees by the real estate entities did not constitute a
trade or business or separate activity from the rental activity
of those entities. The management fees were incurred by the
entities in connection with rental activity and, therefore, would
be a deduction attributable to the rental income/activity. See
sec. 1.469-2T(d)(1)(i), Temporary Income Tax Regs., 53 Fed. Reg.
5716 (Feb. 25, 1988). We, accordingly, hold that respondent’s
determination that petitioners were not entitled to reduce
management income by the management fee deduction of the real
estate entities was not in error.
Petitioners, as additional support for their attempt to
treat the real estate entities’ management fee deductions as
nonpassive items, generally argue that respondent’s disallowance
of the deductions contravenes certain fundamental or established
principles of taxation. For example, petitioners argue that, in
effect, they had no accession to wealth because the corresponding
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