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4. Conclusion
Because petitioner has satisfied the incidental activity
exception elements, he is entitled to treat his equipment leasing
activity as incidental to the law firm’s trade or business
activity. Petitioner’s leasing activity, therefore, is a
nonrental activity.
B. Material Participation
Finally, petitioner must also carry his burden to prove that
he materially participated in the activity to qualify the losses
as nonpassive. See sec. 469(c)(1); Welch v. Commissioner, T.C.
Memo. 1998-310. A taxpayer is treated as materially
participating in an activity only if the taxpayer is involved in
the activity on a basis which is regular, continuous, and
substantial. See sec. 469(h)(1).
A taxpayer may satisfy the material participation
requirement if the taxpayer satisfies any one of seven safe
harbor tests. See sec. 1.469-5T(a), Temporary Income Tax Regs.,
53 Fed. Reg. 5725 (Feb. 25, 1988); see also Lapid v.
Commissioner, T.C. Memo. 2004-222 (citing Mordkin v.
Commissioner, T.C. Memo. 1996-187, which upheld the regulatory
“safe harbor” tests letting taxpayers prove material
participation by showing they spent a certain number of hours on
an activity). One test is particularly relevant here.
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