Taxpayer Did Not Materially Participate in Airplane Activity.

The petitioner operated a business in which he trained telephone representatives and also he also practiced law.  He also conducted an airplane rental activity which the court found was unrelated to the telephone activity.  The court, agreeing with the IRS, disallowed the flying deductions against the income from the telephone business activity.  The petitioner also failed to establish that he had devoted sufficient hours to the airplane activity to satisfy the material participation tests under the passive loss rules - either the 500-hour test or the 100-hour test.  The court noted that the petitioner had failed to keep records of the time spent on the airplane activity.  The court also upheld the IRS-imposed negligence penalty and underreporting penalty.  Williams v. Comr., T.C. Memo. 2014-158.

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