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contends that if the leasing activity is determined to be a
passive activity, the passive activity losses can be grouped with
his share of income from VBR in accordance with the grouping
exception found in section 1.469-4(d)(1)(A), Income Tax Regs.
Taxpayers generally bear the burden of proving that the
Commissioner’s determination is incorrect. Rule 142(a); Welch v.
Helvering, 290 U.S. 111 (1933). The record reflects that section
7491 does not apply in this case.
Section 469(a)(1) limits the deductibility of losses from
certain passive activities of individual taxpayers. Generally, a
passive activity includes the conduct of a trade or business in
which the taxpayer does not materially participate. Sec.
469(c)(1)(A) and (B). A rental activity (except certain rental
activity involving real estate) is generally treated as a passive
activity without regard to whether the taxpayer materially
participates. Sec. 469(c)(1), (2), (4). Rental activity is
defined as "any activity where payments are principally for the
use of tangible property." Sec. 469(j)(8). Under the literal
language of the statute, petitioner’s equipment leasing activity
is a rental activity, and section 469(a) applies.
Petitioner contends that the leasing activity is not a
rental activity because it qualifies as an exception to the
definition of a rental activity under section
1.469-1T(e)(3)(ii)(F), Temporary Income Tax Regs. That
regulation states that an activity is not a rental activity under
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