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Accordingly, we hold that net rental income from the Bear
Valley Road property constitutes income not from a passive
activity. Net rental loss from the John Glenn Road property,
however, retains its characterization as loss from passive
activity. Consequently, the loss is properly disallowed under
section 469(a).14
To reflect the foregoing,
Decision with respect to the
deficiencies will be entered for
respondent; decision with respect
to the accuracy-related penalties
pursuant to section 6662(a) will be
entered for petitioners.
13(...continued)
restaurant did not pay its rent for the John Glenn Road property.
Moreover, sec. 469(b) tempers the harshness of disallowing such
passive activity losses by allowing them to be carried forward.
14Petitioners contend that the issue raised by respondent as
to whether loss from the John Glenn Road rental should be
disallowed as a passive activity loss constitutes a “new matter”,
distinct from respondent’s original contention, set forth in the
statutory notice of deficiency, that net income from the Bear
Valley Road rental is recharacterized as nonpassive. We need not
address this issue, however, because we decide only a legal
issue, not a factual one, and the burden of proof therefore does
not affect our decision.
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