- 25 -
pursuant to the Secretary’s delegated regulation-making
authority.
Without the application of section 1.469-2(f)(6), Income Tax
Regs., taxpayers would be able to substitute passive income from
self-rented properties for nonpassive income, such as wages or
dividends from a personal service or closely held corporation, in
order to offset their passive losses from other activities.
Where the taxpayer controls both sides of the transaction, such
arrangements require special scrutiny.
We do not agree with petitioner that section 1.469-2(f)(6),
Income Tax Regs., has produced an inequitable result. Petitioner
is a sophisticated businessperson who owned multiple properties,
held ownership interests in several businesses, and served as the
president of Shaw’s Gulf and C&A Trucking. Petitioner controlled
both sides of the rental transactions between himself,
individually, as lessor, and as an officer of the respective
businesses, as lessee. As lessor, he knew the appraised value,
the mortgage interest expense, and the depreciation expense on
each property. He had control over establishing the amount of
rent and chose a 12-percent return. Petitioner had nontax
business reasons for retaining ownership of the rental properties
individually and outside of his businesses.
Petitioner must accept the tax consequences of his business
decisions and the manner in which he chose to structure his
Page: Previous 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 NextLast modified: May 25, 2011