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attorneys. Around the same time, the real estate partnership, as
lessor, entered into a new written lease with the corporation,
as the lessee, for the Gardiner property (the 1992 lease). In
January 2000, Susi sold his partnership interest in the real
estate partnership to petitioner. As a result, petitioner
became the sole owner of the Gardiner property. Around the same
time, petitioner, as lessor, entered into a new lease for the
property with the corporation as lessee (the 2000 lease). The
corporation later changed its name to Farris, Heselton, Ladd, &
Bobrowiecki, P.A.
During 2000, 2001, and 2002, petitioner was the majority
shareholder in the corporation, which was the source of all of
his income from the practice of law during those years.
On his 2000, 2001, and 2002 Federal income tax returns,
petitioner reported net passive income from renting the
property to the corporation of $34,839, $46,168, and $48,391,
respectively. For each year, the net passive income was entirely
offset by passive losses attributable to other real estate that
petitioner owned and held for rent during those years.3
In the notice of deficiency respondent increased
petitioner’s income for each year by the appropriate amount of
the rental income shown above. According to the explanation in
3 The amounts of passive losses attributable to other
properties are not in dispute.
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Last modified: March 27, 2008