- 9 -
(a) The Incidental Exception
Although not clearly articulated in their brief, petitioners
apparently argue that their rental activity is incidental to
their nonrental activities, excepting them from the presumption
of passive characterization. See sec. 1.469-1T(e)(3)(ii)(D),
Temporary Income Tax Regs., supra. As it relates to this case,
the regulations “test” provides in pertinent part:
(c) Property used in a trade or business. The
rental of property during a taxable year shall be
treated as incidental to a trade or business activity
* * * if and only if--
(1) The taxpayer owns an interest in such
trade or business activity during the taxable
year;
(2) The property was predominantly used in
such trade or business activity during the taxable
year or during at least two or the five taxable
years that immediately precede the taxable year;
and
(3) The gross rental income from such
property for the taxable year is less than two
percent of the lesser of--
(i) The unadjusted basis of such
property; and
(ii) The fair market value of such
property. [Sec. 1.469-1T(e)(3)(vi)(C),
Temporary Income Tax Regs., 53 Fed. Reg. 5703
(Feb. 25, 1988); emphasis added.]
Petitioners presented no evidence that the amount of the rental
income earned for the years at issue met the 2-percent test. Cf.
Tarakci v. Commisioner, T.C. Memo. 2000-358. The record does not
establish the fair market value or unadjusted basis of the
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Next
Last modified: May 25, 2011