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activity that a taxpayer conducts through a C corporation subject
to section 469 may be grouped with another activity of the
taxpayer, but only for purposes of determining whether the
taxpayer materially or significantly participates in the other
activity.” (Emphasis added.) See sec. 1.469-5, Income Tax Regs.
(regulations on what constitutes material participation). Since
we find that petitioners are not excepted from the general
definition of “rental activity,” we never ask the subsidiary
question of whether petitioners materially participated in such
nonrental activities. See sec. 469(c)(1); Tarakci v.
Commissioner, T.C. Memo. 2000-358; Welch v. Commissioner, T.C.
Memo. 1998-310 (“If petitioner establishes that the activity was
not a rental activity, he then must establish that he materially
participated in the activity to avoid the proscription of section
469.").
2. Accuracy-Related Penalty
Respondent determined an accuracy-related penalty of $2,765
for 1991 based solely upon petitioners’ failure to report rental
income.17 Prior to submission, petitioners conceded that they
had unreported rental income of $55,000 in 1991 which should have
been included on their Schedule E. Respondent’s determination is
presumed correct, and the burden lies with petitioners to
17On brief, respondent states that he does not seek an
increase in the amount of the penalty determined.
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