Paul and Pauline D. Kessler - Page 7

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          activity is broadly defined as any activity involving the conduct           
          of a trade or business in which the taxpayer does not “materially           
          participate”.  Sec. 469(c)(1).  Rental activities are                       
          presumptively passive activities, regardless of whether the                 
          taxpayer materially participates.  Sec. 469(c)(2), (4); Tarakci             
          v. Commissioner, T.C. Memo. 2000-358; Frank v. Commissioner, T.C.           
          Memo. 1996-177.  A rental activity “means any activity where                
          payments are principally for the use of tangible property.”12               
          Sec. 469(j)(8).                                                             
               Respondent’s argument is straightforward:  Petitioners’                
          rental activities are passive in nature, and any losses therefrom           
          cannot be used to offset petitioners’ nonpassive income for the             
          years at issue.  Thus, it is respondent’s position that the loss            
          deductions claimed on petitioners’ returns are currently                    
          unavailable and are suspended until a future date when                      
          petitioners have passive gains.  See sec. 469(b).  Petitioners,             
          on the other hand, assert that they are subject to one of the               
          exceptions to the presumption in favor of passive classification.           







               12It is clear that petitioners’ leasing of equipment to                
          Pauline’s Concrete is a rental activity within the purview of               
          sec. 469.  See Tarakci v. Commissioner, T.C. Memo. 2000-358;                
          Kelly v. Commissioner, T.C. Memo. 2000-32; Welch v. Commissioner,           
          T.C. Memo. 1998-310.                                                        




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