Gregory J. Farris - Page 3




                                        - 2 -                                         
          and this opinion shall not be treated as precedent for any                  
          other case.                                                                 
               Respondent determined deficiencies of $13,259, $17,251, and            
          $17,482 in petitioner’s Federal income tax for 2000, 2001, and              
          2002, respectively.  The issue for decision for each year is                
          whether petitioner understated his passive activity loss.2  The             
          resolution of the issue depends upon whether rental income                  
          petitioner received from his closely held corporation is properly           
          characterized as passive so as to offset passive losses incurred            
          during the year, as petitioner claims, or whether the rental                
          income is nonpassive, as respondent determined.                             
                                     Background                                       
               Substantially all of the facts have been stipulated and the            
          stipulated facts are so found.  At the time the petition was                
          filed, petitioner resided in Gardiner, Maine.                               
               On or about May 14, 1985, petitioner and Mark E. Susi                  
          (Susi), both practicing attorneys, formed Farris & Susi, R.E.               
          (the real estate partnership), for purposes of buying, selling,             
          and renting real estate.  In the same year, the real estate                 
          partnership acquired property located at 251 Water Street,                  
          Gardiner, Maine (the Gardiner property), which consisted of three           
          commercial buildings.                                                       



               2  The parties apparently agree that no portion of his                 
          passive activity loss would be deductible.  See sec. 469(a).                





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