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petitioner’s airplane leasing activity. On these forms,
petitioners reported the following:
1998 1999
Gross receipts $9,500 $34,940
Depreciation expense 61,500 98,320
Mortgage expense 13,471 14,521
Legal/professional expense -0- 108
Profit (loss) (65,471) (78,009)
Petitioners also reported that petitioner materially participated
in the leasing activity in each year.
In the statutory notice of deficiency, respondent determined
that petitioner’s Schedule C leasing activity was a passive
activity subject to the provisions of section 469. Respondent
accordingly limited the losses allowable to petitioners with
respect to the activity to the extent of petitioners’ passive
income. This resulted in the disallowance of deductions for
losses of $47,8712 in 1998 and $78,009 in 1999.
Pursuant to section 469(a), a passive activity loss
generally is not allowed as a deduction for the year in which it
is sustained. A passive activity loss is defined as the excess
of the aggregate losses from all passive activities for the
taxable year over the aggregate income from all passive
activities for that year. Sec. 469(d)(1). Passive activities
2Although the record is not clear, the disallowed loss in
1998--which is less than the Schedule C loss of $65,471--
apparently reflects the $17,600 gain from the sale of the
airplane which petitioner had purchased to lease to PFC.
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