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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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