Alfredo A. and Jane R. Galagar - Page 3

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               Respondent determined deficiencies of $5,982 and $1,484 in             
          petitioners’ 1998 and 1999 Federal income taxes, respectively.              
          After a concession by petitioners as to the deficiency for                  
          taxable year 1999, this Court must decide:  (1) Whether                     
          petitioner Alfredo A. Galagar (petitioner) was a real estate                
          professional under section 469(c)(7) during taxable year 1998,              
          and, if not, (2) whether petitioners’ claimed rental real estate            
          loss is subject to the phaseout provision for rental real estate            
          activities under section 469(i).                                            
               Some of the facts in this case have been stipulated and are            
          so found.  Petitioners resided in Yorba Linda, California, at the           
          time they filed their petition.  Because petitioners did not meet           
          the substantiation and recordkeeping requirements of section                
          7491(a)(2), the burden of proof remains on petitioners.  Rule               
               During taxable year 1998, petitioners owned and rented a               
          single family home in Chino, California (the rental property).              
          In connection with the rental property, petitioners attached                
          Schedule E, Supplemental Income and Loss, to their jointly filed            
          Form 1040, U.S. Individual Income Tax Return.  On Schedule E,               
          petitioners reported rental income in the amount of $14,748, and            
          total expenses in the amount of $36,001, for a rental real estate           
          loss of $21,253.  Petitioners claimed that loss on Line 17 of               
          their Form 1040.  Respondent disallowed $20,721 of petitioners’             

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