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the notice of deficiency, because the “rental income is from a
rental to a corporation in which * * * [petitioner] materially
[participates], the income from that activity is considered non-
passive.” Therefore, according to respondent, the nonpassive
rental income, obviously otherwise includable in petitioner’s
income, cannot be offset by petitioner’s passive losses. Other
adjustments made in the notice of deficiency are not in dispute
and need not be addressed.
Discussion
Section 469 generally disallows for the taxable year any
passive activity loss. Sec. 469(a)(1). The term “passive
activity loss” is defined as the excess of the aggregate losses
from all passive activities for the taxable year over the
aggregate income from all passive activities for that year. Sec.
469(d)(1). A “passive activity” is “any activity * * * which
involves the conduct of any trade or business, and * * * in which
the taxpayer does not materially participate.” Sec. 469(c)(1).
The term “passive activity” generally includes any rental
activity regardless of whether the taxpayer materially
participates. Sec. 469(c)(2), (4).
While the general rule of section 469(c)(2) characterizes
all rental activity as passive, section 1.469-2(f)(6), Income Tax
Regs., requires net rental income received by the taxpayer for
use of an item of the taxpayer’s property in a business activity
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Last modified: March 27, 2008