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perceived equipment leasing tax shelters.” The fact that the
leasing activity generated a profit (for 1986) does not impress
the Court as proof that petitioners are entitled to an interest
expense deduction for 1986. By the same token, the disallowance
of expenses claimed with respect to an activity does not mean
that the income or gross receipts of the activity can be
disregarded. Section 1.183-1(e), Income Tax Regs., provides, in
pertinent part, that “gross income derived from an activity not
engaged in for profit includes the total of all gains from the
sale, exchange, or other disposition of property, and all other
gross receipts derived from such activity.” Such gross income
shall include, for instance, capital gains and rents received for
the use of property that is held in connection with the activity.
The gross receipts of an activity, even if the activity is not
engaged in for profit, constitute gross income, and there is no
provision for the exclusion or the disregarding of such income
simply because the expenses related thereto are not deductible.
Petitioners, therefore, failed to sustain their burden of
proving their entitlement to an interest deduction of $50,380 for
1986, and the Court rejects petitioners’ contention the net
income of the activity for 1986 should be disregarded.
Respondent’s determination on this issue is sustained.
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