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Respondent, relying upon the recharacterization rule,
maintains that the rental income petitioner received from the
real estate partnership in 2000, 2001, and 2002 from the
corporation is nonpassive. According to respondent, the
transitional rule does not apply because the 2000 lease is not
merely a continuation of the 1985 lease but the last in a series
of four different leases.
The 1985 lease was between the real estate partnership and
the law partnership. At the time, petitioner and Susi were the
only partners of both the law partnership and the real estate
partnership. The parties to the 1990 lease were the same as the
parties to the 1985 lease, and, according to petitioner, the
terms and conditions of those two leases were the same. The 1992
lease differed from the prior two if only because it involved a
lessor and a lessee not involved with the 1985 lease; namely a
partnership and a corporation, neither of which was in existence
in 1985. Things changed once again in the 2000 lease. This time
the parties to the lease were petitioner, as the lessor, and the
corporation, as the lessee.
The corporation, one party to the 1992 and 2000 leases, did
not exist before December 30, 1992. As petitioner views the
matter, the corporation should be treated as a continuation of
the law partnership. Petitioner’s view is not only contrary to a
fundamental principle of Federal income taxation but contrary to
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Last modified: March 27, 2008