James V. and Judith M. Patterson - Page 5

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          from the company listed approximately five such expenses, all of            
          which were reimbursed by petitioners or subtracted from the                 
          rental income.                                                              
               Petitioner paid the utility and mortgage bills on a monthly            
          basis, the condominium fee on a quarterly basis, and county taxes           
          on a yearly basis.  During March and/or April of each year, in              
          preparation for the rental season, petitioner would “de-                    
          winterize” the unit.  At this time of year, petitioner would                
          often need to do repairs, such as ceiling repair, patching, and             
          painting, and he would normally shampoo the carpets.  Around                
          Thanksgiving each year, petitioner would spend approximately 1              
          week at the rental unit to prepare it for winter, when the unit             
          was not actively rented.  At this time, petitioner would normally           
          turn off the water and power, turn down the heat, bring in                  
          outside furniture, and perform “general cleanup”.                           
               Petitioners filed a joint Federal income tax return for each           
          of the years in issue.  They claimed losses on the rental unit of           
          $14,781 in 1994 and $14,017 in 1996.  The 1994 return was filed             
          on a 1996 form and was signed by petitioners on January 15, 1997.           
          In the statutory notice of deficiency, respondent disallowed the            
          above-mentioned losses on the grounds that petitioners “did not             
          materially participate in the day to day operations” of the                 
          rental property, causing the losses to be nondeductible passive             
          activity losses.                                                            

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