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Petitioner’s 2002 tax return includes five Schedules E,
Supplemental Income and Loss, on which the rental income and
expenses of the rental units are reported (the Schedules E).3
Taking into account that income and those expenses, the Schedules
E show an aggregate loss of $57,906 (the rental loss) which is
deducted from the other income shown on petitioner’s return.
In February 2005, prior to the completion of the examination
of petitioner’s 2002 return, petitioner submitted a second 2002
return. This second return, which was not processed by
respondent, included a Schedule C, Profit or Loss From Business,
but no Schedule E. The income and expenses originally reported
on the Schedules E are shown on the Schedule C. Otherwise, there
is no difference between the two returns. In a letter dated
February 10, 2005, to respondent, petitioner stated that she
wanted to “amend” her 2002 return, and further that she “[wished]
to utilize the affirmative election” of section 469(c)(7)(A). It
is not clear whether the letter and the second return, which was
not processed by respondent, were submitted together.
In the notice of deficiency that forms the basis for this
case, the rental loss deduction was disallowed because, according
to an explanation contained in the notice, “rental activities of
any kind, regardless of material participation, are considered
3 On one of the Schedules E petitioner aggregated the
amounts shown on the other four.
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