                    T.C. Summary Opinion 2009-177



                        UNITED STATES TAX COURT



         ESTHER NJOROGE AND PAUL KIBIRO, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 18133-08S.              Filed November 30, 2009.



     Esther Njoroge and Paul Kibiro, pro sese.

     Ronald S. Collins, Jr., for respondent.



     RUWE, Judge:     This case was heard pursuant to the provisions

of section 74631 of the Internal Revenue Code in effect when the

petition was filed.    Pursuant to section 7463(b), the decision to

be entered is not reviewable by any other court, and this opinion

shall not be treated as precedent for any other case.


     1
       Unless otherwise indicated, all section references are to
the Internal Revenue Code as amended, and all Rule references are
to the Tax Court Rules of Practice and Procedure.
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     Respondent determined a $12,327 deficiency in petitioners’

2005 Federal income tax.   In the notice of deficiency, respondent

made adjustments to petitioners’ income on the bases of:

Discharge of indebtedness income; disallowance of rental real

estate activity losses; and resultant computational adjustments

to itemized deductions.2   Petitioners have conceded the discharge

of indebtedness income issue.   Accordingly, the only issue

remaining for decision is whether petitioners are entitled to

deduct claimed rental real estate activity losses of $40,503.

                            Background

     Some of the facts have been stipulated.   The stipulation of

facts and the attached exhibits are incorporated herein by this

reference.   At the time the petition was filed, petitioners

resided in Delaware.


     2
       Although neither party has addressed it, we note that
respondent also disallowed a $3,250 tuition and fees expense
deduction petitioners claimed on the 2005 return. Furthermore,
petitioners have not asserted that respondent’s computational
adjustments to itemized deductions are erroneous.

     Rule 34(b)(4) provides that the petition in a deficiency
action shall contain: “Clear and concise assignments of each and
every error which the petitioner alleges to have been committed
by the Commissioner in the determination of the deficiency or
liability. * * * Any issue not raised in the assignments of
error shall be deemed to be conceded.”

     Petitioners have not pleaded error regarding the
disallowance of the deduction for tuition and fees expense, nor
have they pleaded error regarding the computational adjustments
to itemized deductions. Accordingly, we deem any issue regarding
the tuition and fees expense deduction and the computational
issue regarding itemized deductions conceded by petitioners.
                                - 3 -

     Petitioners are husband and wife.    In or about 2003 and

2004, petitioners acquired residential rental properties in

Worcester and Springfield, Massachusetts (the rental properties).

At the time the rental properties were acquired, petitioner

Esther Njoroge (Mrs. Njoroge) was working as a nurse.

Petitioners had very little knowledge about real estate at the

time they determined to invest.    During 2005 petitioners lived in

Worcester, about an hour’s drive from the Springfield property.

     Petitioners timely filed a joint Form 1040, U.S. Individual

Income Tax Return, for 2005.    During 2005 both petitioners were

employed as nurses.   Petitioners reported wages, salaries, tips,

etc., of $157,614, and adjusted gross income of $113,861.    Of

these wages, $43,000 was earned by Mrs. Njoroge.    On their 2005

Form 1040 Schedule E, Supplemental Income and Loss, petitioners

reported $11,008 in rents received and $51,511 in expenses.      Thus

petitioners reported a total rental real estate loss of $40,503.

     Respondent mailed a notice of deficiency to petitioners,

dated April 22, 2008.    In the notice of deficiency, respondent

disallowed the entire $40,503 loss that petitioners reported from

the rental properties.
                                 - 4 -

                              Discussion

     Deductions are a matter of legislative grace, and the

taxpayer bears the burden of proving entitlement to the

deductions claimed.     Rule 142(a); INDOPCO, Inc. v. Commissioner,

503 U.S. 79, 84 (1992); New Colonial Ice Co. v. Helvering, 292

U.S. 435, 440 (1934).    Pursuant to section 7491(a) the burden of

proof may be shifted to the Commissioner where a taxpayer has

introduced credible evidence regarding factual issues relevant to

ascertaining his tax liability.    Rule 142(a)(2).   Petitioners

have neither claimed nor shown eligibility for a shift in the

burden of proof.   Consequently, the burden of proof remains with

petitioners.

     Section 469(a) generally disallows any passive activity loss

for any taxable year.    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).   The term “passive

activity” is defined as any activity involving the conduct of any

trade or business in which the taxpayer does not materially

participate.   Sec. 469(c)(1).   Rental activity is treated as a

per se passive activity whether or not the taxpayer materially

participates in the activity.    Sec. 469(c)(2), (4).

     There are two principal exceptions to the general

disallowance rule of section 469(a) for rental real estate
                               - 5 -

activity.   The first exception is found in section 469(i).

Section 469(i)(1) provides:

          (1) In general.–-In the case of any natural
     person, subsection (a) shall not apply to that portion
     of the passive activity loss or the deduction
     equivalent * * * of the passive activity credit for any
     taxable year which is attributable to all rental real
     estate activities with respect to which such individual
     actively participated in such taxable year * * *.

This exception in section 469(i) is limited to losses that do not

exceed $25,000.   Sec. 469(i)(2).   The $25,000 maximum “offset”,

however, begins to phase out for taxpayers whose adjusted gross

income exceeds $100,000 and is completely phased out for

taxpayers whose adjusted gross income is $150,000 or more.    Sec.

469(i)(3)(A).   For this purpose, adjusted gross income is

determined without regard to “any passive activity loss or any

loss allowable by reason of subsection (c)(7).”   Sec.

469(i)(3)(F).

     On their 2005 Form 1040, petitioners reported adjusted gross

income of $113,861.   On their attached Schedule E they reported

$40,503 of either passive activity losses or losses determined

under section 469(c)(7).   Consequently, for this purpose,

petitioners’ adjusted gross income is modified by adding the

$40,503 loss back to the reported adjusted gross income of

$113,861; i.e., petitioners’ modified adjusted gross income, for

purposes of section 469(i), is $154,364.   Because petitioners’
                               - 6 -

modified adjusted gross income is more than $150,000, they are

not entitled to any offset under section 469(i).

     The second exception, under section 469(c)(7), applies

special rules if the taxpayer is a real estate professional.

Under section 469(c)(7)(B) a taxpayer qualifies as a real estate

professional, and the rental real estate activity of the taxpayer

is not a per se passive activity under section 469(c)(2), if:

          (i) More than one-half of the personal services
     performed in trades or businesses by the taxpayer
     during such taxable year are performed in real property
     trades or businesses in which the taxpayer materially
     participates, and

          (ii) such taxpayer performs more than 750 hours of
     services during the taxable year in real property
     trades or businesses in which the taxpayer materially
     participates.

See Bailey v. Commissioner, T.C. Memo. 2001-296.      In the case of

a joint return the requirements of section 469(c)(7)(B) are

satisfied if and only if either spouse separately satisfies the

requirements.   Sec. 469(c)(7)(B) (flush language).    As a result,

if either spouse qualifies as a real estate professional, the

rental activities of such spouse are not per se passive under

section 469(c)(2).   See sec. 469(c)(7)(A)(i).

     Although a taxpayer may establish the extent of his or her

participation in a real estate business by “any reasonable

means”, sec. 1.469-5T(f)(4), Temporary Income Tax Regs., 53 Fed.

Reg. 5727 (Feb. 25, 1988), a postevent “ballpark guesstimate”

will not suffice, see Lee v. Commissioner, T.C. Memo. 2006-193;
                                - 7 -

Bailey v. Commissioner, supra; Carlstedt v. Commission, T.C.

Memo. 1997-331; Speer v. Commissioner, T.C. Memo. 1996-323;

Goshorn v. Commissioner, T.C. Memo. 1993-578.

     The record is devoid of any evidence establishing that

either petitioner met the requirements of section 469(c)(7)(B).

Petitioners have not provided even a “ballpark guesstimate” of

the number of hours either of them spent on the rental real

estate activity.   Nothing in the record establishes whether more

than one-half of the personal services performed by either of

petitioners was performed in their rental real estate activity or

whether either of them spent more than 750 hours in that

activity.    Mr. Kibiro testified that he and his wife did not keep

“meticulous records” regarding the rental properties, and

petitioners produced no such records at trial.   Although Mrs.

Njoroge testified that she traveled to the Springfield property

two or three times a week, there is no indication of the number

of hours she spent working on the rental properties.

Consequently, petitioners have not established that they meet the

requirements of either section 469(c)(7)(B)(i) or (ii).    Because

petitioners have failed to establish that either spouse qualifies

as a real estate professional under section 469(C)(7)(B), their

rental real estate activity is per se passive under section

469(c)(2).
                                 - 8 -

     Petitioners have not met the requirements of any of the

exceptions to the general disallowance rule of section 469(a).

Accordingly, we sustain respondent’s determination to disallow

the $40,503 loss.

     To reflect the foregoing,


                                              Decision will be entered

                                         for respondent.
