Paul M. and Wanda E. Harmon - Page 5

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          bedroom apartment.  It also has a laundry room with a coin-                 
          operated washer and dryer.  Petitioner performed the majority of            
          the work on the property in order to minimize expenses.  She                
          would show the apartments, process rental applications, collect             
          rent, and perform general maintenance work.                                 
               Petitioners claimed deductions on their 2001 Federal income            
          tax return for a rental real estate loss of $68,796 relating to             
          the Lyon Street property.  Respondent determined that this loss             
          resulted from a passive activity and disallowed it.5  Petitioners           
          argue that, as a real estate professional, Mrs. Harmon is not               
          subject to the passive activity loss rules normally applicable to           
          rental property.  We disagree and consequently hold for                     
          A.  Burden of Proof                                                         
               Taxpayers are permitted deductions only as a matter of                 
          legislative grace, and only as specifically provided by statute.            
          INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992).  In                  
          addition, the Commissioner’s determinations are generally                   
          presumed correct, and the taxpayer bears the burden of proving              
          those determinations wrong.  Rule 142(a); Welch v. Helvering, 290           
          U.S. 111, 115 (1933).  The burden of proof may, under certain               

               5  Respondent does not dispute that petitioners have                   
          substantiated the claimed expenses.                                         

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