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Respondent determined a $26,693 deficiency in petitioners’
2000 Federal income tax and a $5,338.60 penalty pursuant to
section 6662(a). The issues for decision are: (1) Whether the
passive activity rules of section 469 preclude petitioners from
deducting losses from their rental real estate activities in the
taxable year 2000, and (2) whether petitioners are liable under
section 6662(a) for an accuracy-related penalty.
Some of the facts have been stipulated, and they are so
found. The stipulation of facts, supplemental stipulation of
facts, and attached exhibits, as well as additional exhibits
admitted during trial, are incorporated herein by this reference.
Petitioners Susan Hanna (Mrs. Hanna) and Edward Hanna (Mr. Hanna)
are married and resided in Sanibel, Florida, when they filed
their petition. For convenience, we combine our findings and
discussion herein.
Sanibel is a popular vacation spot located on an island off
the west coast of Florida. In 1999, petitioners purchased two
houses in Sanibel and began renting them to vacationers. In
2000, petitioners rented the first house for a total of 20 weeks
and the second house for a total of 19 weeks. Petitioners also
purchased a third house in Sanibel in May 2000, which they
immediately leased back to the sellers for the remainder of that
year. For convenience, we refer to the management and operation
of the three properties as the “rental activities”.
Petitioners did not live in Sanibel in 2000. Instead, they
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