- 5 - business activities where the taxpayer does not materially participate, and (2) rental activities. Sec. 469(c)(1) and (2). The notice of deficiency that respondent sent the Lapids disallowed their losses precisely because respondent called all their investments “rental activity,” and so per se passive. Petitioners argue that none of the Lapids’ investments were rental activities, and that the amount of time that Mrs. Lapid poured into monitoring these investments made her a material participant--transforming what would ordinarily be a passive activity into an active one. This means, they argue, that the passive activity rules do not apply and the Lapids’ losses should be allowed. Respondent now agrees that at least the hotel condos were trade or business activities, but he still asserts that most of Mrs. Lapid’s time should not count toward whether she materially participated. However, the bulk of his argument now is metronomically (twelve times in the fourteen pages of the reply brief) calling Mrs. Lapid’s testimony “vague, uncorroborated, and self-serving.” The parties point us in the right direction at times but, unlike them, we divide this case in two. First, we analyze the Lapids’ hotel condos as a trade or business. We then decide whether what Mrs. Lapid was doing counts as “material participation.” Second, we look at the Lapids’ nonhotel condoPage: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 Next
Last modified: May 25, 2011