                  T.C. Summary Opinion 2007-127



                     UNITED STATES TAX COURT



          PAUL M. AND WANDA E. HARMON, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 11911-06S.             Filed July 26, 2007.


     Wanda E. Harmon, pro se.

     Emily Giometti, for respondent.



     ARMEN, Special Trial Judge:   This case was heard pursuant to

the provisions of section 7463 of the Internal Revenue Code in

effect when the petition was filed.1   Pursuant to section

7463(b), the decision to be entered is not reviewable by any




     1
        Unless otherwise indicated, all subsequent section
references are to the Internal Revenue Code in effect for 2001,
the taxable year at issue, and all Rule references are to the Tax
Court Rules of Practice and Procedure.
                               - 2 -

other court, and this opinion shall not be treated as precedent

for any other case.

     Petitioners claimed deductions for a rental real estate loss

of $68,796 for the taxable year 2001 that respondent denied,

resulting in a deficiency in petitioners’ income tax for the year

of $18,937.   The sole issue for decision is whether petitioner-

wife was a real estate professional and thus not subject to the

passive activity loss rule of section 469(c)(2) and (4).2

                            Background

     Some of the facts have been stipulated, and they are so

found.   We incorporate by reference the parties’ stipulation of

facts and accompanying exhibits.

     At the time the petition was filed, Paul M. Harmon (Mr.

Harmon) and Wanda E. Harmon (petitioner or Mrs. Harmon) resided

in Oakland, California.3

     With a background in English and a master’s degree in

counseling, petitioner was employed by both Golden Gate




     2
        The two other adjustments contained in the notice of
deficiency are mechanical in nature and are dependent on the
final calculation of petitioners’ adjusted gross income.
     3
        Although Mr. and Mrs. Harmon both signed the petition, as
only Mrs. Harmon appeared in person at trial and as this case
solely concerns Mrs. Harmon’s status as a real estate
professional, we refer to Mrs. Harmon alone as petitioner. We
refer to Mr. and Mrs. Harmon jointly as petitioners.
                               - 3 -

University and The Casey Family Outreach Program (Casey) in

2001.4

     Petitioner’s work with Casey focused on working with at-risk

youths in the foster care system by developing Casey’s tutoring

program.   Petitioner also worked to find employment for the

youths involved in the Casey program.   She attended regular staff

meetings, visited group homes, and was available on call.

Petitioner’s job description indicates that her position was a

“full-time, exempt position that at times [required] workweeks in

excess of 40 hours”.   According to Casey’s payroll records,

petitioner worked a total of 2,080 hours in 2001.

     In addition to working for Casey, petitioner worked for

Golden Gate University’s graduate school of business as an

adjunct professor.   She developed and taught an online course for

the spring and summer semesters where the students were

responsible for at least one semester project, a midterm

examination, and a final examination.

     Petitioners own a residential property on Lyon Street in

Oakland, California (the Lyon Street property or the property),

which they bought in the late 1980s and rent out, often to low-

income tenants.   The property is a fourplex containing two one-

bedroom apartments, one two-bedroom apartment, and one three-


     4
        “Casey Family Programs’ mission is to provide and
improve—and ultimately to prevent the need for—foster care.”
Http://www.casey.org/AboutCasey/.
                                 - 4 -

bedroom apartment.     It also has a laundry room with a coin-

operated washer and dryer.     Petitioner performed the majority of

the work on the property in order to minimize expenses.     She

would show the apartments, process rental applications, collect

rent, and perform general maintenance work.

      Petitioners claimed deductions on their 2001 Federal income

tax return for a rental real estate loss of $68,796 relating to

the Lyon Street property.     Respondent determined that this loss

resulted from a passive activity and disallowed it.5    Petitioners

argue that, as a real estate professional, Mrs. Harmon is not

subject to the passive activity loss rules normally applicable to

rental property.   We disagree and consequently hold for

respondent.

                              Discussion

A.   Burden of Proof

      Taxpayers are permitted deductions only as a matter of

legislative grace, and only as specifically provided by statute.

INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992).     In

addition, the Commissioner’s determinations are generally

presumed correct, and the taxpayer bears the burden of proving

those determinations wrong.     Rule 142(a); Welch v. Helvering, 290

U.S. 111, 115 (1933).     The burden of proof may, under certain


      5
        Respondent does not dispute that petitioners have
substantiated the claimed expenses.
                                - 5 -

circumstances, shift to the Commissioner under section 7491(a) if

the taxpayer introduces credible evidence with respect to any

factual issue relevant to ascertaining the taxpayer’s income tax

liability.    See Higbee v. Commissioner, 116 T.C. 438, 441 (2001).

However, the burden of proof remains on petitioners in this case

as they have neither alleged that section 7491(a) is applicable

nor introduced sufficiently credible evidence with respect to the

factual issues relevant to ascertaining their income tax

liability.    See id.

B.   Losses From Rental Activities

       Section 469 generally disallows for the taxable year 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.    Sec. 469(c)(1).   Rental activity, such

as petitioners’ renting out the Lyon Street property, is

generally treated as a per se passive activity regardless of

whether the taxpayer materially participates.    Sec. 469(c)(2) and

(4).    Under section 469(c)(7)(B), however, the rental activity of

a taxpayer in a real property trade or business (real estate

professional) is not per se a passive activity.    Instead, it is

treated as a trade or business and subject to the material
                                 - 6 -

participation requirements of section 469(c)(1).    Sec.

1.469-9(e)(1), Income Tax Regs.    Petitioners argue that Mrs.

Harmon is a real estate professional.

     A taxpayer qualifies as a real estate professional and is

not engaged in a passive activity 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.

Sec. 469(c)(7)(B).   A trade or business includes being an

employee.   Putoma Corp. v. Commissioner, 66 T.C. 652, 673 (1976),

affd. 601 F.2d 734 (5th Cir. 1979); Fowler v. Commissioner, T.C.

Memo. 2002-223.    In the case of a joint return, the same spouse

must satisfy each requirement.    Sec. 469(c)(7)(B).   In the

present case, that means that petitioner must satisfy both

requirements of section 469(c)(7)(B).    Accordingly, we focus on

her participation in the rental activity related to the Lyon

Street property.

     1.   750-Hour requirement

     Petitioners’ position is that Mrs. Harmon spent 774.5 hours

on rental activities in 2001, thus exceeding the 750-hour

requirement of section 469(c)(7)(B)(ii).    “The extent of an

individual’s participation in an activity may be established by
                                - 7 -

any reasonable means.”    Sec. 1.469-5T(f)(4), Temporary Income Tax

Regs., 53 Fed. Reg. 5727 (Feb. 25, 1988).6   Although “reasonable

means” is interpreted broadly, we have held that the phrase does

not include a postevent “ballpark guesstimate”.    See Fowler v.

Commissioner, supra; Goshorn v. Commissioner, T.C. Memo. 1993-

578.

       Despite having made use of a Palm Pilot during 2001–-the

pages of which could have been printed out and submitted for

review–-petitioners submitted two items to establish the amount

of time Mrs. Harmon spent working on the property:    Calendar

pages filled out by hand and a purported summary of the

activities shown on the calendar.    Both items were compiled after

petitioners had been asked by respondent to produce documentation

in anticipation of trial.

       Petitioner testified that she created the calendar by

referring to entries in her Palm Pilot.    She compiled the summary

by estimating how long she had spent on the activity.    For

example, on one day, she had noted in her Palm Pilot that she

painted.    This translated into a calendar entry of “painting all

day” with a time of 10 hours noted on the summary; petitioner




       6
        Temporary regulations are entitled to the same weight as
final regulations. See Peterson Marital Trust v. Commissioner,
102 T.C. 790, 797 (1994), affd. 78 F.3d 795 (2d Cir. 1996); Truck
& Equip. Corp. v. Commissioner, 98 T.C. 141, 149 (1992).
                               - 8 -

decided on the 10-hour figure because “she knew she had all day

to do it” and because Home Depot opened at 7 o’clock.

     We do not find petitioners’ calendar or summary to be

persuasive.   See Wichita Terminal Elevator Co. v. Commissioner, 6

T.C. 1158, 1165 (1946), affd. 162 F.2d 513 (10th Cir. 1947).   The

summarization in particular appears to be more akin to the

unacceptable ballpark guesstimates we have rejected in the past

than it is to “reasonable means” that would establish that Mrs.

Harmon actually spent 774.5 hours on real estate activities in

2001.

     2. More than one-half of the personal services performed in
trades or businesses by the taxpayer

     Assuming, arguendo, that we were persuaded by petitioners’

claim that Mrs. Harmon spent 774.5 hours on real estate

activities in 2001, petitioners are still unable to satisfy the

other portion of the test outlined in section 469(c)(7)(B) for

treatment as a real estate professional.   According to section

469(c)(7)(B)(i), petitioners have to prove that more than

one-half of Mrs. Harmon’s personal services performed in trades

or businesses in 2001 were performed in real property trades or

businesses.   Petitioners are unable to do so.

     Petitioners argue that Mrs. Harmon’s other personal service

commitments were sufficiently minimal so as to permit the 774.5

hours she claims to have spent on rental activities to constitute

more than one-half of the personal services she performed in
                                 - 9 -

2001, satisfying section 469(c)(7)(B)(i).   We disagree.   Although

petitioner was contracted to perform–-and was paid for--full-time

employment with Casey, she argues that she worked only 8 hours

per week.   The evidence, however, contradicts petitioners’ claim.

See Tokarski v. Commissioner, 87 T.C. 74, 77 (1986) (stating “we

are not required to accept the self-serving testimony of

petitioner * * * as gospel.”).

     The job description for petitioner’s position at Casey

specifically states that her position at times required workweeks

in excess of 40 hours.   Her employment contracts were for full-

time employment during the relevant time periods.   Even Casey’s

payroll records indicate that petitioner worked a full-time

schedule:   2,080 per year is the equivalent of 40 hours per week.

 Although it may be possible that she did not work a 40-hour week

each week as documented by payroll–-professional salaried

employees often are not on a fixed schedule yet something must be

entered into the accounting software--it is not reasonable to

assume that a nonprofit organization would pay anyone in excess

of $55,000 per year plus benefits for working only 8 hours per

week.7   The 2,080 hours Casey’s payroll records show far exceed

the 774 hour maximum petitioner would have been able to work and

still meet the test outlined in section 469(c)(7)(B).




     7
         That works out to approximately $132 per hour.
                                - 10 -

      In addition, although she minimizes the amount of time she

spent working for Golden Gate University, teaching even an on-

line version of a course must take some time, and this time would

have to be factored into any analysis of petitioner’s performance

of personal services in 2001.

C.   Conclusion

      Because petitioner did not qualify as a real estate

professional, we need not consider whether she materially

participated in the rental activities.       See sec. 469(c)(7)(B).

      Further, we note that section 469(i) provides an exception

to the general rule that passive activity losses are disallowed.

A taxpayer who “actively [participates]” in a rental real estate

activity can deduct a maximum loss of $25,000 per year related to

the activity.     Sec. 469(i)(1) and (2).    This exception is fully

phased out, however, when adjusted gross income (AGI) equals or

exceeds $150,000.     Sec. 469(i)(3)(A), (E).    Petitioners’ 2001 AGI

exceeded $150,000.     Accordingly, they cannot deduct any amount of

the passive activity loss in 2001.       But see sec. 469(b)

(explaining that disallowed losses may be treated as a deduction

allocable to the activity in a succeeding taxable year).

      Respondent’s determination is sustained, and to reflect our

disposition of the disputed issue,



                                             Decision will be entered

                                      for respondent.
