Paul and Pauline D. Kessler - Page 6

                                        - 6 -                                         
          the lease agreement in the amounts of $55,000,10 $108,000, and              
          $184,702, respectively.  With respect to the leasing activity,              
          for 1991 and 1992, petitioners claimed only equipment                       
          depreciation deductions of $171,980 and $171,979, respectively.             
          With respect to their leasing activity, for 1993, petitioners               
          claimed deductions for interest expense and depreciation of                 
          $44,538 and $183,478, respectively.                                         
          Discussion                                                                  
               Determinations of the Commissioner in a notice of deficiency           
          are presumed correct, and the burden is on the taxpayer to show             
          that the determinations are erroneous.11  Rule 142(a); Welch v.             
          Helvering, 290 U.S. 111, 115 (1933).  As a general matter,                  
          deductions are a matter of legislative grace, and the taxpayer              
          bears the burden of proving entitlement to such claimed                     
          deductions.  INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84                 
          (1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440                
          (1934).                                                                     
               1.  Were Petitioners’ Rental Activities Passive Activities?            
               Section 469(a)(1) limits the deductibility of losses from              
          activities which are deemed “passive” activities.  A passive                


               10See supra note 2.  On their 1991 return, petitioners                 
          reported no lease income.                                                   
               11Sec. 7491, which shifts the burden of proof to respondent            
          in certain circumstances, does not apply because the examination            
          of the returns at issue commenced prior to the statute’s                    
          effective date.                                                             




Page:  Previous  1  2  3  4  5  6  7  8  9  10  11  12  13  14  15  16  Next

Last modified: May 25, 2011