Carolyn D. Fenderson - Page 7

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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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