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