                         T.C. Memo. 1998-156



                       UNITED STATES TAX COURT



  THOMAS C. OBERLE AND MARGARET COLBERT OBERLE, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 5390-97.              Filed April 30, 1998.



     Kirk A. Pinkerton and Stuart J. Friedman, for petitioners.

     Lauren Gore, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     FOLEY, Judge:    Respondent determined deficiencies in

petitioners' Federal income taxes of $8,532.67 for 1993 and

$14,038 for 1994.    All section references are to the Internal

Revenue Code in effect for the years in issue, and all Rule

references are to the Tax Court Rules of Practice and Procedure.
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The issue for decision is whether petitioners are entitled to

deduct losses attributable to their yacht chartering activity.

We hold that they are not so entitled.

                           FINDINGS OF FACT

     Some of the facts have been stipulated and are so found.    At

the time petitioners filed their petition, they resided in

Beverly Shores, Indiana.

     During the years in issue, Mr. Oberle was a stockbroker for

Dean Witter Reynolds, Inc., and Ms. Oberle was a real estate

broker for Price Realtors, Inc.    On or about September 11, 1993,

petitioners purchased a 38-foot yacht for $143,000, entered into

a 7-year Charter Brokerage Agreement (agreement) with Michigan

City Sailboat Charters, Inc. (broker), and docked the yacht in

one of the broker's slips at Michigan City, Indiana.

     The agreement provides that the broker is responsible for

the following duties:   (1) Showing the yacht to prospective

charterers; (2) signing any and all documents pertaining to the

charter of the yacht; (3) collecting fees from charterers; (4)

making mechanical repairs of items damaged during a charter; (5)

meeting the charterers at the yacht; (5) reviewing yacht

equipment and operations; (6) taking charterers on orientation

cruises; (7) cleaning the yacht on completion of the charter; and

(8) taking all necessary steps to charter the yacht.   In exchange

for these services, the broker received a commission of 50
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percent of charter revenues.    The agreement further provides that

petitioners (1) are required to maintain the yacht in good

condition and (2) have the right to operate the yacht for

personal use, provided such use does not conflict with the

yacht's charters.

     At the end of October 1993, petitioners removed the yacht

from the water and placed it in storage for the winter at Benton

Harbor, Michigan.    From September 11 through December 20, 1993,

petitioners worked on the yacht for a total of approximately 53

hours.    Most of this time was spent traveling to the storage

facility where they cleaned and winterized the yacht.    The yacht

was not chartered in 1993.

     On April 23, 1994, petitioners sailed the yacht to Michigan

City.    During 1994, the yacht was chartered 45 days, and

petitioners received gross receipts of $5,152.    Petitioners

occasionally used the yacht for personal enjoyment.    On October

22, 1994, petitioners removed the yacht from the water and placed

it in storage for the winter.    During 1994, petitioners worked on

the yacht for a total of 194 hours, but only 89 hours of such

work was performed while the yacht was docked at Michigan City.

Petitioners spent most of this time performing routine

inspections and maintenance of the yacht.    From 1993 through 1996

petitioners did not make a profit from their chartering activity.

On their returns, petitioners claimed net losses of $21,858 for
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1993 and $35,830 for 1994 relating to their chartering activity.

Respondent disallowed the claimed deductions because petitioners

were not engaged in the activity for profit and did not

materially participate in the activity.



                              OPINION

     Even if petitioners carried on their chartering activity for

profit, their deductions for this activity shall not be allowed

because they did not materially participate in such activity.

Section 469 disallows the deduction of net losses from any

activity in which the taxpayer does not materially participate.

Sec. 469(c).   An individual materially participates in an

activity when involved in the operations of the activity on a

regular, continuous, and substantial basis.    Sec. 469(h)(1).

Temporary regulations provide, in relevant part, that an

individual shall be treated as materially participating if the

individual meets any of the following tests:

          (2) The individual's participation in the activity
     for the taxable year constitutes substantially all of
     the participation in such activity of all individuals
     (including individuals who are not owners of interests
     in the activity) for such year;

          (3) The individual participates in the activity for
     more than 100 hours during the taxable year, and such
     individual's participation in the activity * * * is not less
     than the participation * * * of any other individual
     (including individuals who are not owners of interests in
     the activity) for such year;

     *         *       *         *        *         *        *
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          (7) Based on all of the facts and circumstances
     * * *, the individual participates in the activity on a
     regular, continuous, and substantial basis during such
     year. [Sec. 1.469-5T(a)(2), (3), and (7), Temporary
     Income Tax Regs., 53 Fed. Reg. 5725-5726 (Feb. 25
     1988)].

To meet the material participation test under paragraph (a)(7),

an individual must participate in the activity for more than 100

hours.   Sec. 1.469-5T(b)(2)(iii), Temporary Income Tax Regs., 53

Fed. Reg. 5726 (Feb. 25, 1988).

     Petitioners have failed to establish that they materially

participated in the charter activity.   Petitioners entered into

an agreement with the broker that gave the broker all day-to-day

management responsibilities, including taking all necessary steps

to charter the yacht.   Petitioners failed to devote 100 hours to

their activity in 1993 and while petitioners devoted 194 hours to

their activity in 1994, only 84 of such hours relate to the

period when the yacht was available for charters.   Assuming

arguendo that petitioners did devote more than 100 hours to their

activity in 1994, they have not established that such

participation was greater than the broker's participation.     In

essence, petitioners' participation was limited to routine

maintenance of the yacht and was not substantial.   Therefore, we

conclude that petitioners did not materially participate in their

chartering activity.    Cf. Chapin v. Commissioner, T.C. Memo.

1996-56; Goshorn v. Commissioner, T.C. Memo. 1993-578.
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Accordingly, we hold that they are not entitled to the claimed

deductions.

     All other contentions raised by the parties are either

irrelevant or without merit.

     To reflect the foregoing,


                                              Decision will be entered

                                         for respondent.
