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Dairy Queen restaurant were managed by Russell and the day-to-day
operations of Western Sizzlin’ SW were managed by Palmer. The
activities that will be considered as participation in Shaw Ltd.
are petitioner’s involvement in the renovations and initial
operations of his restaurants in 1995. Petitioner spent about 7
hours a week during the 14-week construction period on activities
related to the Dairy Queen restaurant, or 98 hours, and he spent
about 14 hours a week during a 15-week construction period on
activities related to the Western Sizzlin’ SW restaurant, or 210
hours. Petitioner’s flight and travel time related to Shaw Ltd.
was 110 hours in 1995. Petitioner’s 418 hours of participation
in Shaw Ltd. do not meet the material participation test for
1995. Petitioner has conceded that he did not participate in
Shaw Ltd. for 500 hours in 1996.
Petitioner’s argument that he spent more than 500 hours in
significant participation activities in 1996 impermissibly
combines his hours of participation in Shaw Ltd. with his hours
of participation in his rental activities. Section 1.469-
5T(c)(1)(i), Temporary Income Tax Regs., 53 Fed. Reg. 5726
(Feb. 25, 1988), provides that a significant participation
activity must be a trade or business activity, not a rental
activity.
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