                  T.C. Summary Opinion 2007-191



                      UNITED STATES TAX COURT



               CAROLYN D. FENDERSON, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 18961-05S.            Filed November 13, 2007.



     Thomas I. Hausman and Patricia M. Ritzert, for petitioner.

     Anita A. Gill, for respondent.


     CARLUZZO, Special Trial Judge:   This case was heard

pursuant to the provisions of section 7463.1    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, section references are to the
Internal Revenue Code of 1986, as amended, in effect for the
relevant period.
                                - 2 -

     Respondent determined a $22,584 deficiency in petitioner’s

2002 Federal income tax.   The issue for decision is whether

petitioner is entitled to a deduction for a loss from her real

estate activities.    The resolution of the issue depends, in part,

upon whether section 469(c)(7) applies to petitioner for the year

in issue.

                             Background

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

the time the petition was filed in this case, petitioner resided

in Ohio.

     In January 2000, petitioner started employment as an account

manager for Symantec Corporation, a company that markets a

popular computer security software program (Symantec).   She was

so employed during 2002, and although expected to develop new

business, she was primarily responsible for servicing eight

existing customers.   To that end, she regularly kept in contact

with those customers and was always available to them in order to

ensure that any problems or concerns any might have would be

properly and promptly resolved.   If the customer’s problem were

of a technical nature, petitioner would arrange for one or more

Symantec software engineers to get involved.

     During the first year of her employment with Symantec,

petitioner frequently traveled to customers and potential
                                - 3 -

customers in Cleveland and Pittsburgh.    She spent at least 50

hours a week doing so.

     Petitioner’s compensation from Symantec was composed of a

base salary, stock options, and sales commissions based on sales

of software licenses.    Depending on the size and nature of the

sale transaction, a series of licenses involved in a single sale

might be “rolled out” over a period of years following the year

of the sale.   Her commissions were paid when the “roll out”

occurred.   As a result, petitioner received commissions in one

year that related to sales made during a previous year or years.

     In 2002 petitioner’s compensation from Symantec totaled

$186,487.   Some of the commissions included in that amount relate

to sales of software licenses made in years prior to 2002.

According to petitioner, she spent about 15 hours a week working

for Symantec during 2002.    She maintained a calendar that tracked

her activities and appointments in connection with her employment

at Symantec, which ended during 2003.

     As of the close of 2002 petitioner owned several parcels of

residential real estate that she held for rent, or rented during

that year (collectively, the rental units).    Some of the rental

units were leased in accordance with Federal or State programs

that provided rent subsidies to the tenant(s)/lessee(s) (the rent

subsidy programs).   On her timely filed 2002 Federal income tax
                                 - 4 -

return, the rental units are identified by addresses, as follows:

(1) East 149th St.; (2) Euclid Hgts. Blvd.; (3) Wickford Rd.;

(4) Continental; (5) E. 97th; (6) Parkhill; (7) E. 131st St.;

(8) Parkgate; (9) Graham; and (10) Endura.2

     For the most part, and generally speaking, petitioner was

responsible for renting and managing the rental units.   She

advertised when a unit was available.    She conducted and attended

open houses showing the units.    She arranged for utilities to be

turned on when necessary.   She requested and reviewed credit

reports with respect to prospective tenants.   She painted and

cleaned the units when necessary, and she arranged for repairs to

be made in those situations when she was not competent to make

the repairs herself.

     In addition to activities related to a specific rental unit,

petitioner attended real estate auctions and reviewed listings of

real estate for sale by Government authorities and private

sellers.   From time to time, she also met with officials from the

Federal or State Government agencies that administered the rent

subsidy programs.

     Separate and apart from the calendar that petitioner kept in

connection with her employment at Symantec, petitioner maintained




     2
        At trial petitioner explained that the Graham and Endura
rental units were actually owned by her brother.
                               - 5 -

a calendar in which she recorded her activities related to the

rental units (petitioner’s calendar).   Some of the entries made

in the calendar relate specifically to one or another of the

rental units; many entries merely show the words “auction”, or

“sheriff’s listings”.   Some of the entries appear to be

reminders, or relate to upcoming events, rather than a record of

an event that actually occurred.   For example, on those days when

the word “auction” is noted, it cannot be determined whether

petitioner actually attended an auction, or merely marked her

calendar to show that the event was scheduled on that date.

Similarly, many notations show a 4-hour period for “gas” or

“electric” with respect to one or another of the rental units.

Again, it cannot be determined whether petitioner actually spent

4 hours on that date waiting for someone from one utility company

or another, or whether petitioner merely noted the date and time

frame when the utility company employee was scheduled to arrive.

Some of the entries contained in petitioner’s calendar are

clearly personal in nature.   For example, on July 4, petitioner

noted “Carol’s house, take salad and merlot”.   On other dates, a

person’s name is listed, but the relevance of that person’s

involvement, if any, with a particular rental unit cannot be

determined from the entry on the calendar.
                               - 6 -

     Petitioner’s 2002 tax return includes five Schedules E,

Supplemental Income and Loss, on which the rental income and

expenses of the rental units are reported (the Schedules E).3

Taking into account that income and those expenses, the Schedules

E show an aggregate loss of $57,906 (the rental loss) which is

deducted from the other income shown on petitioner’s return.

     In February 2005, prior to the completion of the examination

of petitioner’s 2002 return, petitioner submitted a second 2002

return.   This second return, which was not processed by

respondent, included a Schedule C, Profit or Loss From Business,

but no Schedule E.   The income and expenses originally reported

on the Schedules E are shown on the Schedule C.   Otherwise, there

is no difference between the two returns.   In a letter dated

February 10, 2005, to respondent, petitioner stated that she

wanted to “amend” her 2002 return, and further that she “[wished]

to utilize the affirmative election” of section 469(c)(7)(A).    It

is not clear whether the letter and the second return, which was

not processed by respondent, were submitted together.

     In the notice of deficiency that forms the basis for this

case, the rental loss deduction was disallowed because, according

to an explanation contained in the notice, “rental activities of

any kind, regardless of material participation, are considered



     3
        On one of the Schedules E petitioner aggregated the
amounts shown on the other four.
                                  - 7 -

passive activities unless the requirements of section 469(c)(7)

* * * are met”.    Other adjustments made in the notice of

deficiency are not in dispute.

                             Discussion

     In general and as relevant here, an individual is not

entitled to a deduction for a passive activity loss incurred

during the taxable year.    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 activity which involves the conduct of any trade

or business and in which the taxpayer does not materially

participate.    Sec. 469(c)(1).   For this purpose, a “trade or

business” is generally defined as any activity in connection with

a trade or business or any activity for the production of income

under section 212.    Sec. 469(c)(6).

     In general, a rental activity is treated as a passive

activity regardless of whether the taxpayer materially

participates.    Sec. 469(c)(2),(4).      If a taxpayer is described in

section 469(c)(7), section 469(c)(2) does not apply, and the

taxpayer’s rental activity, if conducted as a trade or business

or for the production of income, is a passive activity unless

the taxpayer materially participates in the activity.         Sec.
                               - 8 -

469(c)(1); Fowler v. Commissioner, T.C. Memo. 2002-223; sec.

1.469-9(e), Income Tax Regs.

     The parties disagree on a number of different points

concerning the application and relevance of section 469 to

petitioner’s rental activities.   Among those disagreements, they

dispute whether section 469(c)(7) applies.   Petitioner claims

that section 469(c)(7) applies to her for the year in issue, and

therefore section 469(c)(2) does not apply for that year;

respondent disagrees.   Under the circumstances, if section

469(c)(7) does not apply to petitioner for 2002, then she is

subject to section 469(c)(2) for that year, which means that the

rental loss is a passive activity loss and she is not entitled to

the rental loss deduction here in dispute.

     Section 469(c)(7) does not apply to a taxpayer unless, in

addition to another requirement, “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”.   Sec. 469(c)(7)(B)(i).   In this case, the equation

contemplated by the statute requires that we measure the extent

of the personal services that petitioner performed as an employee

of Symantec against the personal services petitioner performed in

real estate trades or businesses in which she materially

participated.
                                - 9 -

     The parties proceeded as though the extent of personal

services performed in a trade or business is measured by hours.

We do likewise and start with petitioner’s trade or business as

an employee of Symantec.    According to petitioner, she spent

approximately 15 hours per week working for Symantec.    She

described in general terms how that time was spent, but she

provided little in the way of specifics.    Although she maintained

a written record regarding her activities as an employee of

Symantec, the written record was not made available to the Court.

     Petitioner’s compensation from Symantec, the lack of any

written evidence corroborating her testimony on time she claims

to have spent performing personal services for Symantec during

2002, the extent of her obligations to her customers as an

account manager of Symantec, and the amount of hours she spent

working for Symantec in previous years strongly suggest that she

spent more than 15 hours per week performing personal services

for Symantec during 2002, but the suggestion is no substitute for

evidence.   As it stands, the only evidence on the point is

petitioner’s testimony.    Assuming, without finding, that

petitioner’s estimate is accurate, we proceed as though

petitioner spent 780 hours (15 hours per week x 52 weeks)

performing services as an employee of Symantec during the year in

issue.
                                - 10 -

     Next we turn to the personal services performed by

petitioner in real estate trades or businesses in which she

materially participated.

     For purposes of section 469, a taxpayer materially

participates in an activity only if the taxpayer is involved in

the operation of the activity on a basis which is regular,

continuous, and substantial.4    Sec. 469(h)(1).   We are satisfied

that with respect to each real estate activity involving a rental

unit, petitioner’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”.     Sec. 1.469-

5T(a)(2), Temporary Income Tax Regs., 53 Fed. Reg. 5725 (Feb. 25,

1988).   Consequently, for purposes of section 469, petitioner may

be treated as having materially participated in the operation of

each of the rental units, and we proceed as though she did.5




     4
        Circumstances that, in and of themselves, establish
material participation in a given activity can be found in sec.
1.469-5T(a), Temporary Income Tax Regs., 53 Fed. Reg. 5725 (Feb.
25, 1988).
     5
        Argument could be made that for purposes of sec. 469, a
taxpayer’s participation in an activity is not treated as
“regular, continuous, and substantial” during any year if the
individual participates in the activity for 100 hours or less
during that year. See Oberle v. Commissioner, T.C. Memo. 1998-
156; sec. 1.469-5T(b)(2)(iii), Temporary Income Tax Regs., 53
Fed. Reg. 5726 (Feb. 25, 1988). Under the circumstances we need
not decide the point.
                              - 11 -

     According to petitioner, she performed more than 100 hours

of personal services in connection with each of the rental units.

In support of her claim in this regard, she submitted a schedule

of the hours spent on each unit (Exhibit 3-J).   Exhibit 3-J shows

a total of 1,062.18 hours spent on all rental units.   The exhibit

itself is a summary of a document that shows the date, nature of

the activity, and time spent on a property-by-property basis

(Exhibit 4-P).   Exhibit 4-P, in turn, is, according to

petitioner, based upon items listed in petitioner’s calendar.

Although the calendar was prepared contemporaneously with the

events recorded in it, Exhibit 3-J and Exhibit 4-P were prepared

years later during either the examination of petitioner’s 2002

return or in preparation for this proceeding.

     In reliance on her calendar and the above-referenced

exhibits, petitioner argues that more than one-half of her time

spent in performing personal services in trades or businesses

during 2002 was spent in performing personal services in real

estate trades or businesses (1,062.18 hours performing personal

services in her real estate trades or businesses versus 780 hours

performing personal services as an employee of Symantec). As

petitioner views the matter, she has satisfied the requirements

of section 469(c)(7)(B), and therefore section 469(c)(2) does not

apply.   Sec. 469(c)(7)(A).
                              - 12 -

     Petitioner’s view, however, presupposes that the amounts of

hours shown on Exhibits 3-J and 4-P are supported by entries made

in her calendar.   This does not appear to be the case.

     A number of inconsistencies between items shown on

petitioner’s 2002 return, her calendar, and the exhibits were

brought out during petitioner’s cross-examination at trial.

Furthermore, upon careful review of those documents, we are

unable to reconcile estimates of time shown on Exhibits 3-J and

4-P with entries made in petitioner’s calendar.   On many dates,

the estimate of time spent on a particular activity exceeds

the amount of time shown on that calendar for that date.   For

example, on Exhibit 4-P petitioner shows more than 9 hours spent

performing various types of services at Parkgate on January 3,

2002.   The hours presumably are incorporated in the total hours

shown for that property on Exhibit 3-J.   Entries on her calendar

for that date, however, do not support the number of hours or the

type of activities described in Exhibit 3-J.

     A taxpayer can establish personal services performed in an

activity by any reasonable means.   Reasonable means “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.”   Sec. 1.469-5T(f)(4),

Temporary Income Tax Regs., 53 Fed. Reg. 5727 (Feb. 25, 1988).
                              - 13 -

Among Exhibit 3-J, Exhibit 4-P, and petitioner’s calendar, we

find petitioner’s calendar to be the only record that complies

with the above regulation.6   For purposes of that regulation,

“ballpark [guesstimates]” contained in postevent records, such as

Exhibits 3-J and 4-P are entitled to little, if any, weight in

determining the extent of a taxpayer’s participation in an

activity.   Bailey v. Commissioner, T.C. Memo. 2001-296; Carlstedt

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

Memo. 1996-323; Goshorn v. Commissioner, T.C. Memo. 1993-578.

     We have carefully and repeatedly reviewed petitioner’s

calendar.   After doing so, we find that the estimates of time

spent on specific properties shown in Exhibits 3-J and 4-P are

overstated, at least to the extent as follows:



     6
        This is not to suggest that petitioner’s calendar is not
without problems. Petitioner explained that some entries made in
the calendar were made before the activity occurred, and she did
not adjust the entries later to reflect the actual duration of
the activity. See, e.g., Fowler v. Commissioner, T.C. Memo.
2002-223.
     Furthermore, although the calendar contains many entries
related to petitioner’s rental activities, such as evictions,
collecting rent, inspections, meeting with contractors,
mediation, auctions, credit checks, listing reviews, screening of
prospective applicants, etc., there is nothing to connect these
activities to a specific rental unit or rental activity.
Similarly, the calendar contains numerous entries that do not, in
and of themselves, show how the activity was related to a rental
activity. For example, some entries on the calendar show only
the name of an individual and a phone number. Other entries
simply show the address of a rental unit. Some entries are
obviously not related to any rental activity. Finally, there are
some entries that are illegible.
                                   - 14 -
     Rental Unit              Hours per Exhibits    Hours per calendar
                                 3-J and 4-P            (maximum)

     East 149th St.                119.57                 110
     Euclid Hgts Blvd.             120.81                  80
     Wickford Rd.                  101.03                  45
     Continental                   153.53                 117
     E. 97th                       115.57                  80
     Parkhill                      106.95                 110
     E. 131st                      133.73                  60
     Parkgate                      103.49                  60
     Woodstock                     107.50                  97
       Total hours               1,062.18                 759


     Relying upon the entries in petitioner’s calendar, we find

that petitioner spent 759 hours performing personal services in

connection with her real estate trades or businesses in which she

materially participated during 2002.7         Because petitioner spent

at least 780 hours performing personal services as an employee of

Symantec during 2002 she does not qualify for the provisions of

section 469(c)(7).       This means that section 469(c)(2) operates to

treat all of petitioner’s real estate activities as passive

activities regardless of whether she materially participated in

any of them.

     It follows that under the provisions of section 469(a)

petitioner is not entitled to the rental loss deduction, and

respondent’s disallowance of that deduction is sustained.




     7
        Whether the hours listed for Woodstock, a property not
included on any of the Schedules E, should be taken into account
in the analysis is a moot question. The outcome remains the same
whether hours are included or ignored.
                        - 15 -

To reflect the foregoing,


                            Decision will be entered

                    for respondent.
