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tax. We decide whether petitioners’ lottery winnings are
includable in their adjusted gross income for purposes of
applying the $25,000 offset of section 469(i). We hold they
are.2
Background
The facts in this background section are obtained from the
parties’ stipulation of facts and the exhibits submitted
therewith. Petitioners resided in Los Angeles, California, when
their petition was filed.
Petitioners filed a joint 2000 Form 1040, U.S. Individual
Income Tax Return. They reported on that return the following
items of income (loss) which they realized during 2000:
Wages $118,053
Interest 4,731
Refunds 872
Rental real estate (22,300)
California State lottery winnings 136,041
Total income 237,397
The rental real estate is a “passive activity”, sec. 469(c)(2),
in which petitioners actively participated.
Discussion
Respondent determined that the phase-out rules of section
469(i)(3) preclude petitioners from currently deducting any of
their rental real estate loss. Under that section, individual
taxpayers such as petitioners who actively participate in a
2 We decide this case on its merits and without regard to
which party bears the burden of proof.
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Last modified: May 25, 2011