Paul and Pauline D. Kessler - Page 12

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          their wholly owned subchapter C corporation.  The corporation was           
          in the business of leasing heavy construction equipment to                  
          third parties.  According to the lease agreement between the                
          taxpayers and their corporation, the corporation assumed all the            
          responsibility and costs for the equipment.  Similar to this                
          case, the taxpayers claimed ordinary net losses.  The                       
          Commissioner determined that the taxpayers’ leasing activity was            
          a passive rental activity and denied the claimed deductions.                
          This Court analyzed the facts in light of the extraordinary                 
          personal services exception and held that the evidence did not              
          establish that the taxpayers                                                
               in their individual capacities provided either                         
               significant or extraordinary personal services in                      
               connection with making their equipment available for                   
               use either by * * * [taxpayers’] customer * * * [their                 
               corporation] or for use by * * * [the corporation’s]                   
               customers. * * * [Hairston v. Commissioner, supra.]                    
                                                                                     
          The Court explained that under the lease agreement, the taxpayers           
          were not obligated as owners of the equipment to provide any                
          services to their corporation or the end users.  “Any services              
          that * * * [the taxpayers] might have performed as * * *                    
          [corporate] officers or employees were unrelated to * * * [the              
          taxpayers’] obligations as owners of the equipment.”  Id.  Thus,            
          the Court concluded that the taxpayers did not qualify for the              
          extraordinary personal services exception.  A similar result is             
          required here.                                                              







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