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Taxpayers disagree with the disallowance.
Taxpayers furnished the Service numerous schedules
supported by affidavits and receipts documenting that
all losses in question were allowed due to material
participation under Treas. Reg. 1.469-5T(a)(1) and
1.469-5T(a)(3).
The Service’s primary rebuttal to abundance of
documentation has been that it is not possible for the
husband and wife, i.e., taxpayers Gary & Darlene White,
to have worked a combined total of 18 hours in any
given day. Apparently the most the Service believes
that 2 people can work in one day is 16 hours!
Taxpayers contend that the Service’s position is
unreasonable and without any authoritative support.
Discussion12
Generally, the Commissioner’s determinations are presumed
correct, and the taxpayer bears the burden of proving that those
determinations are erroneous. Rule 142(a); Welch v. Helvering,
290 U.S. 111, 115 (1933).
Section 469 generally disallows for the taxable year passive
activity losses incurred by individual taxpayers. Sec.
469(a)(1). A passive activity loss is the amount by which the
aggregate losses from all passive activities for the taxable year
exceed the aggregate income from all passive activities for such
year. Sec. 469(d)(1)(A). A passive activity is any trade or
business in which the taxpayer does not materially participate.
Sec. 469(c)(1). The term passive activity includes any rental
activity regardless of whether the taxpayer materially
12 We decide the issue in this case without regard to the
burden of proof under sec. 7491(a) because the issue is
essentially one of law.
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Last modified: May 25, 2011