Richard B. May and Jane M. May - Page 9

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          section 469(c)(7)(A).  The final regulation, which is                       
          substantially the same as the proposed regulation, became final             
          on December 22, 1995, and is generally effective for taxable                
          years beginning on or after January 1, 1995, and to elections               
          made under section 1.469-9(g), Income Tax Regs., with returns               
          filed on or after January 1, 1995.  See sec. 1.469-11(a)(3),                
          Income Tax Regs.  Therefore, to satisfy the literal requirements            
          for making an election to treat all rental real estate activities           
          as a single activity under section 469(c)(7)(A), a taxpayer must            
          file an election with his or her original return.                           
               Petitioners concede that they did not attach to any relevant           
          return a statement electing to treat petitioner’s rental real               
          estate activities as a single activity.  Therefore, petitioner              
          did not satisfy the literal requirements of section 469(c)(7)(A)            
          to treat all interests in rental real estate as a single                    
          activity.                                                                   
               Petitioners contend, however, that they made a “deemed                 
          election” by consistently aggregating the rental income and                 
          expenses from the rental properties on their tax returns since              
          1993.  Petitioners assert that such practice complies with the              
          OBRA sec. 13143(a), 107 Stat. 440, and the regulations                      
          thereunder.6  In petitioners’ view, this practice of aggregating            

               6  Petitioners appear to rely on sec. 1.469-9(d)(2), Income            
          Tax Regs., for the proposition that a taxpayer must be consistent           
                                                             (continued...)           





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