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performing or overseeing repairs and maintenance of the office
building and office equipment, paying AGI’s bills and payroll,
depositing AGI’s checks, filing related employment tax returns,
remaining on call 7 days a week with the security service, and
overseeing tenants moving in and out of the office building on
weekends.
AGI incurred losses during the years at issue from the
leasing activities and the legal support services, both of which
it classified as nonpassive and netted with its consulting
activity income on its partnership returns. AGI had net losses
of $34,090 in 1999 and $34,207 in 2000. AGI issued Schedule K-1,
Partner’s Share of Income, Credits, Deductions, Etc., each year
to petitioners reflecting their distributive share of the losses,
which they shared equally. Petitioners each reported their
distributive share of the losses in each year at issue on
Schedule E, Supplemental Income and Loss. Petitioner wife’s
Schedule E losses from AGI for 1999 and 2000 reduced her self-
employment income from the law practice.
Respondent determined in the statutory notice of deficiency,
dated December 11, 2002, that AGI’s leasing activities were per
se passive and limited by the passive activity rules. In making
that determination, respondent cited petitioner wife’s law
practice gross income of $175,505 in 1999 and $220,974 in 2000 as
evidence that she could not have devoted the necessary time to
AGI. Respondent determined, consequently, that petitioners did
not qualify for an exception to the passive loss rules and should
not have netted income from AGI’s consulting services with losses
from its leasing activities and legal support services.
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Last modified: May 25, 2011