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Moreover, we cannot attribute the services provided by
Pauline’s Concrete to petitioners’ leasing activities. The
grouping rules are inapplicable because they only determine
whether a taxpayer materially participates in an activity, not
whether an activity is excepted from the definition of a rental
activity.
Section 1.469-4, Income Tax Regs.,
sets forth the rules for grouping a taxpayer’s trade or
business activities and rental activities for purposes
of applying the passive activity loss and credit
limitation rules of section 469. A taxpayer’s
activities include those conducted through C
corporations that are subject to section 469, S
corporations, and partnerships.” [Sec. 1.469-4(a),
Income Tax Regs.16]
The regulations provide: “One or more trade or business
activities or rental activities may be treated as a single
activity if the activities constitute an appropriate economic
unit for the measurement of gain or loss for purposes of section
469.” Sec. 1.469-4(c)(1), Income Tax Regs. Whether such
activities constitute an appropriate economic unit depends upon
all the relevant facts and circumstances. Sec. 1.469-4(c)(2),
Income Tax Regs.
Here, however, this attribution rule does not apply.
Section 1.469-4(d)(5)(ii), Income Tax Regs., states that: “An
16Sec. 1.469-4, Income Tax Regs., applies only to tax years
ending after May 10, 1992. See sec. 1.469-11(a)(1), Income Tax
Regs.
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