James V. and Judith M. Patterson - Page 3

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               Respondent determined deficiencies in petitioners’ Federal             
          income taxes of $4,130 and $3,934 for the taxable years 1994 and            
          1996, and a section 6651(a)(1) addition to tax of $161.25 for               
          taxable year 1994.                                                          
               The issue for decision is whether petitioners materially               
          participated in the rental of a certain condominium unit during             
          1994 and 1996.1                                                             
               Some of the facts have been stipulated and are so found.               
          The stipulations of fact and the attached exhibits are                      
          incorporated herein by this reference.  Petitioners resided in              
          Schaghticoke, New York, on the date the petition was filed in               
          this case.                                                                  
               During 1994, petitioner husband (petitioner) was employed as           
          a chemical engineer, and petitioner wife was employed as a                  
          registered nurse.  During 1996, petitioner retired, and                     
          petitioner wife was employed as a certified nurse midwife.                  
               During both of the years in issue, petitioners owned a                 
          condominium unit in North Topsail Beach, North Carolina.  The               
          condominium association management company, CAM Inc., provided              

          1Petitioners did not address at trial the sec. 6651(a)(1)                   
          addition to tax for failure to file a timely return.  We                    
          consequently consider this addition to tax to be undisputed by              
          petitioners.  However, we note that the record supports                     
          respondent’s determination that the addition to tax was                     
          applicable, because petitioners’ 1994 Federal income tax return             
          was filed on a 1996 form and was signed by petitioners on January           
          15, 1997.                                                                   

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