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taxpayer actively participated, subject to a phaseout once the
taxpayer's adjusted gross income exceeds $100,000. The $25,000
exemption is phased out by 50 percent of the amount by which the
adjusted gross income of the taxpayer for the taxable year
exceeds $100,000. Sec. 469(i)(3). For this purpose, the
taxpayer's adjusted gross income is determined without regard to
any passive activity loss. Sec. 469(i)(3)(F)(iv). Respondent
concedes that petitioner actively participated in the rental real
estate activity.
On their 1999 tax return, petitioners reported $149,616 in
wages, $53 in taxable interest, $3,521 in taxable refunds or
credits, $6,272.50 in wages from IIEM, and $5,000 in wages from
the university for an adjusted gross income (without the passive
activity loss) of $164,462.50. Petitioners' adjusted gross
income exceeds $100,000 by $64,462.50. Fifty percent of
$64,462.50 is $32,231.25. When petitioners' maximum offset
amount of $25,000 is reduced by $32,231.25, it is completely
eliminated. Thus, the Court sustains respondent's determination
disallowing petitioners' rental real estate loss.
C. Accuracy-Related Penalty
Respondent determined that petitioners are liable for the
accuracy-related penalty under section 6662(a). Section 6662(a)
imposes a 20-percent penalty on the portion of an underpayment
attributable to any one of various factors, including negligence
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