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activity exception, and we now address whether this exception
applies to petitioner’s equipment leasing activity.
A. Whether Petitioner Qualifies for the Incidental
Activity Exception
An activity involving the use of tangible property is not
considered a rental activity if the rental is “incidental” to a
nonrental activity of the taxpayer. Sec. 1.469-1T(e)(3)(ii)(D),
Temporary Income Tax Regs., supra. Before we discuss whether
petitioner meets the incidental activity exception, however, we
must determine whether the law firm activity, conducted through a
C corporation, can be classified as an activity of the petitioner
for purposes of the incidental activity exception.
1. Whether Petitioner’s Activities Include Those
Conducted Through His C Corporation
A taxpayer’s activities include those conducted through C
corporations that are subject to the passive loss rules of
section 469. Sec. 1.469-4(a), Income Tax Regs. C corporations
subject to section 469 include closely held C corporations, which
are corporations where at least half the stock is owned by no
more than five individuals. Secs. 469(a)(2)(B), (j)(1),
465(a)(1)(B), 542(a)(2). Because petitioner owned 100 percent of
the stock in the law firm, his professional corporation,
petitioner’s activities included his C corporation activities.
9(...continued)
Regs. See also sec. 7805.
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