- 6 -
and house to see whether the Lapids’ losses on them were all
passive. Our analysis shows that the problem with Mrs. Lapid’s
testimony is not that it’s self-serving, but that it is testimony
which even if credible doesn’t help either half of her case.
A. The Hotel Condos
The parties now agree that the hotel condos were rented to
customers for periods averaging less than seven days. And, as
petitioners point out, under the regulations a rental activity
does not include an activity where the average period of customer
use is seven days or less. Sec. 1.469-1T(e)(3)(ii)(A), Temporary
Income Tax Regs., 53 Fed. Reg. 5702 (Feb. 25, 1988); see also
Scheiner v. Commissioner, T.C. Memo. 1996-554. We must treat the
hotel condos as a trade or business.
Whether a loss from a trade or business is a passive
activity loss generally depends on whether the taxpayer claiming
the loss “materially participated” in that trade or business. We
may not treat a taxpayer as a material participant unless his
involvement is regular, continuous, and substantial. Sec.
469(h)(1).
The regulations allow us to treat petitioners as “material
participants” if, but only if, they meet one of seven tests
listed in the regulation. The Lapids argue that they meet four:
• Participation in the activity for more than 500 hours
per year. Sec. 1.469-5T(a)(1), Temporary Income Tax
Regs., 53 Fed. Reg. 5725 (Feb. 25, 1988);
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 Next
Last modified: May 25, 2011