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469 decided 4.2.2013
Mohammad Hassanipour, et al.
v. Commissioner, TC Memo 2013-88 , Code Sec(s) 469; 6662; 7491. MOHAMMAD
HASSANIPOUR AND AZAR NAJAFI, Petitioners v. COMMISSIONER OF INTERNAL REVENUE,
Respondent. Case Information: Code Sec(s): 469; 6662; 7491 Docket: Dkt. No. 12856-11.
Date Issued: 04/2/2013.
OPINION Taxpayers are allowed deductions for
certain business and investment expenses under sections 162 and 212. Section
469, however, generally disallows any passive activity loss. Sec. 469(a).
A passive activity loss is
defined as the excess of the aggregate losses from all passive activities for
the taxable year over the aggregate income from all passive activities for that
year. Sec. 469(d)(1). A passive activity is any trade or business in which the
taxpayer does not materially participate, or to the extent provided in
regulations, any activity with respect to which expenses are allowable as a
deduction under section 212. Sec. 469(c)(1), (6)(B). Rental activity is
generally treated as a per se passive activity regardless of whether the taxpayer
materially participates. Sec. 469(c)(2), (4).
Material participation is defined as
involvement in the operations of the activity that is regular, continuous, and
substantial. Sec. 469(h)(1). An exception to the rule that a rental activity is
per se passive is found in section 469(c)(7), which provides that the rental
activities of a taxpayer in real [*5] property trades or businesses are not per
se passive activities under section 469(c)(2) but are treated as a trade or
business subject to the material participation requirements of section
469(c)(1). See sec. 1.469-9(e)(1), Income Tax Regs.
A taxpayer may qualify as a real estate
professional if: (1) more than one-half of the personal services performed in
trades or businesses by the taxpayer during the taxable year are performed in
real property trades or businesses in which the taxpayer materially
participates and (2) the taxpayer performs more than 750 hours of services
during the taxable year in real property trades or businesses in which the
taxpayer materially participates. Sec. 469(c)(7)(B)(i) and (ii). In the case of
a joint tax return, either spouse must satisfy both requirements. Sec.
Thus, if either spouse qualifies as a real
estate professional, the rental activities of the real estate professional are
not per se passive under section 469(c)(2).
. For purposes of determining
whether a taxpayer is a real estate professional, a taxpayer's material
participation is determined separately with respect to each rental property
unless the taxpayer makes an election to treat all interests in rental[*6] real
estate as a single rental real estate activity. Sec. 469(c)(7)(A); sec. 1.469-
9(e)(1), Income Tax Regs.
ty. See sec. 1.469-9(g)(1),
Income Tax Regs. With respect to the evidence that may be used to establish
hours of participation, section 1.469-5T(f)(4), Temporary Income Tax Regs., 53
Fed. Reg. 5727 (Feb. 25, 1988), provides: The extent of an individual's
participation in an activity may be established by any reasonable means.
Contemporaneous daily time reports, logs, or similar documents are not required
if the extent of such participation may be established by other reasonable
means. Reasonable means for purposes of this paragraph may include but are not
limited to the identification of services performed over a period of time and
the approximate number of hours spent performing such services during such
period, based on appointment books, calendars, or narrative summaries.
Generally, the taxpayer bears the burden of
proving entitlement to any deductions claimed. See Rule 142(a); INDOPCO, Inc.
v. Commissioner, 503 U.S. 79, 84 [69 AFTR 2d 92-694] (1992); Deputy v. du Pont,
308 U.S. 488, 493 [23 AFTR 808] (1940); Rockwell v. Commissioner, 512 F.2d 882,
886 [35 AFTR 2d 75-1055] (9th Cir. 1975), aff'g T.C. Memo. 1972-133 [¶72,133 PH
Memo TC]. This burden may shift to the Commissioner if the taxpayer introduces
credible evidence with respect to any relevant factual issue and meets other
conditions, including maintaining required records. See sec. 7491(a)(1).
Petitioners have not
established their compliance with section 7491(a). Accordingly, petitioners
bear the burden of proof. See Rule 142(a); Welch v. Helvering, 290 U.S. 111,
115 [12 AFTR 1456] (1933). This Court has previously noted that while the
regulations are somewhat ambiguous concerning the records to be maintained by
taxpayers, we are not required to accept a postevent "ballpark
guesstimate" or the unverified, undocumented testimony of taxpayers. See
Moss v. Commissioner, 135 T.C. 365, 369 (2010); Hoskins v. Commissioner, T.C.
Memo. 2013-36 [TC Memo 2013-36]; Estate of Stangeland v. Commissioner, T.C.
Memo. 2010-185 [TC Memo 2010-185]; Shaw v. Commissioner, T.C. Memo. 2002-35 [TC
Memo 2002-35]. We need not accept petitioner's testimony and may and do reject
it because of the many indicia of unreliability. See Fleischer v. Commissioner,
403 F.2d 403 [22 AFTR 2d 5765], [*8] 406 (2d Cir. 1968), aff'g T.C. Memo.
1967-85 [¶67,085 PH Memo TC]; Tokarski v. Commissioner, 87 T.C. 74, 77 (1986).
, we need not analyze whether
he materially participated in management of the rental properties. [*9] Section