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proof on this issue. See Rule 142(a); Welch v. Helvering, 290
U.S. 111 (1933).
Losses from a passive activity are generally not allowed as
a deduction for the year in which they are sustained, except to
the extent of passive activity income. Sec. 469(a). A passive
activity loss is the excess of the aggregate losses from all
passive activities for the taxable year over the aggregate income
from all passive activities for the year. See sec. 469(d)(1).
Passive activities are those activities involving the
conduct of a trade or business in which the taxpayer does not
materially participate. Sec. 469(c)(1). Rental activities are
presumptively passive, without regard to whether the taxpayer
materially participates in the activity. See sec. 469(c)(2),
(4). Both parties agree that petitioner’s equipment leasing
activity is a rental activity and that the income from the
activity is therefore passive, unless petitioner qualifies under
one of six exceptions listed in the regulations. See Welch v.
Commissioner, T.C. Memo. 1998-310; sec. 1.469-1T(e)(3)(ii)(A)
through (F), Temporary Income Tax Regs., 53 Fed. Reg. 5702 (Feb.
25, 1988).9 The exception relevant here is the incidental
9The Commissioner is given authority under sec. 469(l) to
prescribe regulations to carry out the provisions of the section.
As relevant here, this statutory authority was carried out in
sec. 1.469-1T, Temporary Income Tax Regs., 53 Fed. Reg. 5701
(Feb. 25, 1988), sec. 1.469-5T, Temporary Income Tax Regs., 53
Fed. Reg. 5725 (Feb. 25, 1988), and sec. 1.469-9, Income Tax
(continued...)
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