Eugene J. and Kathryn A. Schumacher - Page 8

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          generally are those activities which involve the conduct of a               
          trade or business in which the taxpayer does not materially                 
          participate.  Sec. 469(c)(1).  Rental activities generally are              
          presumptively passive, without regard to whether the taxpayer               
          materially participates in the activity.  Sec. 469(c)(2), (4).              
          Subject to statutory and regulatory exceptions not applicable               
          here, a rental activity is “any activity where payments are                 
          principally for the use of tangible property”.  Sec. 469(j)(8).             
               Pursuant to the regulations issued under section 469,                  
          certain activities may be grouped into a single activity for                
          purposes of ascertaining whether the resulting combined activity            
          is a passive activity under that section.  The regulations state            
          the general rule that                                                       
               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.  A taxpayer who is a                   
          shareholder of an S corporation may group the activity of that S            
          corporation with an activity conducted directly by the taxpayer.            
          Sec. 1.469-4(d)(5)(i), Income Tax Regs.                                     
               Whether activities constitute an “appropriate economic unit”           
          depends upon all the relevant facts and circumstances, giving the           
          greatest weight to (1) similarities and differences in the types            
          of trades or businesses, (2) the extent of common control, (3)              
          the extent of common ownership, (4) geographical location, and              





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