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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 condo
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Last modified: May 25, 2011