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Although we have not previously decided whether grouping
items of passive income and loss within a single section 469
activity precludes recharacterization under section 1.469-
2(f)(6), Income Tax Regs., of income that would otherwise offset
the passive loss,10 we have consistently upheld
recharacterization of passive income which would otherwise offset
passive loss without considering the effect of the activity
grouping. See, e.g., Krukowski v. Commissioner, 114 T.C. 355
(2000); Schwalbach v. Commissioner, 111 T.C. 215, 219-224 (1998);
Cal Interiors, Inc. v. Commissioner, T.C. Memo. 2004-99; Shaw v.
Commissioner, supra; Sidell v. Commissioner, T.C. Memo. 1999-301;
Connor v. Commissioner, T.C. Memo. 1999-185, affd. 218 F.3d 733
(7th Cir. 2000).11 In each of these cases, we validated
10In Krukowski v. Commissioner, 279 F.3d 547, 554 (7th Cir.
2002), affg. 114 T.C. 366 (2000), the taxpayers raised the single
activity grouping argument on appeal, but the Court of Appeals
did not address the issue because the taxpayers had not elected
to treat the rental activities as a single activity on their
return. The taxpayers in Shaw v. Commissioner, T.C. Memo. 2002-
35, likewise, belatedly tried to raise the issue of single
activity grouping but were not allowed to do so.
11In Fransen v. United States, 82 AFTR 2d 6621, 98-2 USTC
par. 50,776 (E.D. La. 1998), affd. 191 F.3d 599 (5th Cir. 1999),
the taxpayers similarly challenged application of sec. 1.469-
2(f)(6), Income Tax Regs., in an action for refund. The
taxpayers argued that sec. 1.469-2(f)(6), Income Tax Regs., is
invalid because it contradicts the statutory designation of
rental activity income as passive. The court awarded summary
judgment to the Commissioner, holding that sec. 1.469-2(f)(6),
Income Tax Regs., is consistent with the express congressional
purposes of sec. 469 and the authorizing language of sec.
(continued...)
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