Kai H. and Susanna Lee - Page 2

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          partnership that Kai and Ulysses ran together and which owned a             
          house and two small apartment buildings.  In 1999 and 2000, Lee             
          Brothers Investments and the brothers’ other real estate                    
          investments ran up big, albeit noncash, losses.  The Commissioner           
          argues that these losses were passive, and so may not be used by            
          the Lees to offset their other income.                                      
                                  FINDINGS OF FACT                                    
          The Lee brothers were born in China, and moved to Honolulu                  
          in 1961.  Both later moved to the mainland (they were California            
          residents when they filed their petitions) and started families             
          of their own.  The Lees are well educated:  Ulysses earned a                
          bachelor’s degree in accounting and a master’s in business                  
          administration.  Kai earned bachelor’s and master’s degrees in              
          nuclear engineering, and another master’s degree and a doctorate            
          in medical physics.                                                         
          During 1999 and 2000, Kai worked full time as a professor of                
          radiology under a joint appointment at the University of Southern           
          California and the Los Angeles County Medical Center.  Kai also             
          co-owned and operated (beginning in 2000) 101 Positron Emission             
          Tomography Management Services LLC, a medical diagnostic                    
          facility; Kai Lee, Ph.D., Inc., a consulting service; and                   
          invested in a few real estate ventures with members of his                  
          family.  Ulysses Lee was a full-time examiner at the IRS, and he            
          also invested in real estate.                                               






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