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. 469(c)(7)(B).

 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 6662(a) 

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