                        T.C. Memo. 2011-191



                     UNITED STATES TAX COURT



            WILLIAM AND NANCY HARNETT, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 29806-07.                 Filed August 11, 2011.



     Philip G. Panitz, for petitioners.

     Kelly R. Morrison-Lee, William J. Gregg, and Scott A. Hovey,

for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     THORNTON, Judge:   Respondent determined these deficiencies

in petitioners’ Federal income taxes:

                    Year       Deficiency

                    2003       $234,610
                    2004        207,595
                    2005        197,331
                                - 2 -

     After concessions by petitioners,1 the primary issue for

decision is whether losses from petitioners’ real estate

activities constitute losses from passive activities pursuant to

section 469.2

                          FINDINGS OF FACT

      The parties have stipulated some facts, which we find

accordingly.    When they petitioned the Court, petitioners resided

in Florida.

I.   Petitioner’s Background

     After retiring from the U.S. Marine Corps in 1952, William

Harnett (petitioner) became a real estate agent.   In 1965 he

organized Washington Homes, Inc., a real estate development

company of which he was sole shareholder until he took the

company public in 1972.   In 1988 an unrelated entity purchased

Washington Homes, Inc., for approximately $100 million.

     In the meantime, to provide financing for customers of

Washington Homes, Inc., petitioner had created Bay State Savings


     1
      In the stipulation of settled issues, petitioners concede a
$10,163 adjustment for interest income, a $17,458 adjustment for
dividend income, and a $10,163 adjustment for investment interest
expense for 2003 as determined in the notice of deficiency. On
brief petitioners further concede the claimed flowthrough rental
losses with respect to two condominiums at 1455 Ocean Drive,
Miami, Florida, of $65,823 for 2003, $57,067 for 2004, and
$62,169 for 2005.
     2
      Unless otherwise indicated, section references are to the
Internal Revenue Code (Code) as in effect for the years at issue,
and Rule references are to the Tax Court Rules of Practice and
Procedure. All figures are rounded to the nearest dollar.
                                 - 3 -

& Loan, later renamed Washington Savings Bank (bank), in Bowie,

Maryland.   During the years at issue petitioner owned about 47

percent of the bank’s common stock and was the bank’s highest

paid employee.   During 2003, 2004, and 2005 he received $338,614,

$337,837, and $273,850, respectively, in wages from the bank and

$389,129, $609,634, and $164,030, respectively, in ordinary

dividend income from the bank.

     From 1988 through the years at issue and beyond, petitioner

was chairman of the board at the bank.   In that capacity he would

preside over monthly meetings of the bank’s board of directors to

review information provided by the bank’s staff, discuss

potential courses of action, and resolve issues listed on a

formal agenda.   Petitioner was also the bank’s chief executive

officer (CEO) from 1988 until he resigned that position in

February 2005, becoming a paid consultant for the bank.    As CEO

petitioner was responsible for attaining the bank’s financial

performance goals, ensuring that the bank’s operations were

sound, evaluating the bank’s financial condition, carrying out

the bank’s policies and procedures, presiding over all board

meetings, and reviewing and signing all financial and government

filings; he also had other companywide management

responsibilities.

     In 2003, at the age of 72, petitioner suffered a heart

attack.   He also had other health problems that curtailed the
                               - 4 -

time he spent at the bank.   Nevertheless, throughout the years at

issue he maintained an office at the bank and remained active in

his duties there.   In addition to coming to the bank

periodically, he spent additional time at remote locations

tending to bank business via telephone and fax, preparing for

bank meetings, and reviewing reports.

II.   Petitioner’s Real Estate Activities

      Before the years at issue petitioner had acquired a great

deal of real estate (described in more detail below) which he

owned either directly or through his wholly owned S corporation,

Washington Capital Group, Inc. (the S corporation).     At one time

petitioner had rented out many of these properties.     But by 2003,

because of his age and other conditions, he had mostly stopped

renting these properties and had begun trying to sell them.

      During the years at issue Jeana Hopkins, who was formerly

petitioner’s secretary at the bank, served as bookkeeper for his

real estate activities and handled payments and some

correspondence related to those activities.     As discussed in more

detail below, petitioner’s nephew, Robert Goldie, looked after

several of the Pennsylvania properties.     Petitioner’s wife was

also involved in managing some of the properties in Florida and

Pennsylvania.
                                - 5 -

     During the years at issue (or some portion of them)

petitioner owned the following properties either individually,

jointly with his wife, or through his S corporation.3

     A.   The Pennsylvania Properties

           1.   116 and 118 East North Avenue, Allison Park,
                Pennsylvania

     In 1957 petitioners purchased these two houses, which were

in what petitioner describes as a “poor neighborhood”.      For about

45 years petitioner rented these houses to various charitable

organizations as a daycare center.      He stopped renting these

properties in 2002 after the last tenant went bankrupt and

vacated the premises, leaving them in poor condition.      Petitioner

hired a lawyer to sue the former tenant.      In 2003 he also hired

Robert Goldie to make repairs to the properties.      In 2004

petitioner sold these properties.

           2.   1620 Golden Mile Highway, Monroeville,
                Pennsylvania

     This property included an 8,000-square-foot structure known

as the Monroeville Professional Center.      The principal tenant, an

architectural firm, stayed there for over 33 years but vacated

the property at some unspecified time before the years at issue.



     3
      In addition, before the years at issue petitioner had owned
an interest in a single-family home in La Plata, Maryland. He
owned this interest through a partnership, WHI Associates, of
which he was general partner and 75-percent owner. The
partnership sold this property at some unspecified time before
the years at issue.
                                 - 6 -

On February 13, 2003, petitioner entered into a listing agreement

with a local real estate agent.    Petitioner touched base with the

real estate agent every couple of weeks to discuss the progress

of the listing and to discuss potential buyers.    After the agent

showed the property to a potential buyer, he would call

petitioner to discuss it.    Petitioner was the agent’s only

contact regarding the potential sale of this property.

Petitioner canceled the listing after 6 months.    In 2005

petitioner received an offer to purchase the property that was

contingent upon having the property rezoned for use as a

methadone clinic.    In July 2005 petitioner engaged a Pittsburgh,

Pennsylvania, law firm in connection with the rezoning.

Ultimately, the rezoning was not approved, and the property was

not sold.

            3.   303 Forestwood Drive, Gibsonia, Pennsylvania

     This property was a single-family home that petitioner had

once rented out.    After the last tenant moved out in 2002,

leaving the property in poor condition, petitioner did not

attempt to rent it.    He retained a real estate broker to attempt

to sell it.

            4.   516 Edgehill Drive, Gibsonia, Pennsylvania

     This property was a single-family home that petitioners

purchased in 1956.    They rented it out for many years, but after

the last tenant moved out in 2001 or 2002, they did not attempt
                                   - 7 -

to rent it.       In September 2004 petitioner and a local real estate

agent negotiated and entered into a listing agreement to sell the

property.     The agent found a buyer for the property; petitioner

instructed the agent to counter the buyer’s offer.        In October

2005 a sales agreement was delivered to petitioner.        Petitioner

paid to have certain repairs done to the property and discussed

with his agent the resolution of a tax issue relating to the

property.     Escrow closed in November 2005.   The real estate agent

signed the settlement documents on petitioner’s behalf.

             5.    Kim Brett Drive, Allison Park, Pennsylvania

     This was vacant land which petitioner subdivided in 2003.

During the years at issue petitioner received calls from various

individuals interested in purchasing lots, but he made no sales.

             6.    Laurel Lane, Allison Park, Pennsylvania

     This was also vacant land.      In 2004 petitioner received

inquiries from builders about selling this land for cluster-home

development, but petitioner declined to pursue these discussions

because he did not wish to have that type of development there.

     B.     Petitioner’s Miami, Florida, Properties

             1.    770 N.E. 69th Street, Miami, Florida

     This property was a one-bedroom condominium in the Palm Bay

Club.     Petitioners purchased the condominium in 1970.

Petitioner had rented this property out many times, but the last

tenant left at some unspecified time before 2003 because of a
                                 - 8 -

termite infestation.    During the years at issue petitioners had a

dispute with the Palm Bay Club condominium association regarding

condominium fees.    Jeana Hopkins handled the correspondence for

petitioners in this matter.    In October 2004 petitioners sold

this property through a broker.

          2.     15511 Fisher Island Drive, Miami, Florida

     This property was a condominium overlooking the ocean at

Fisher Island, where petitioners also had a personal residence.

Although this property previously had been used for vacation or

weekend rentals, petitioner testified that he had no tenant in

this property in 2003 and that during the years at issue “I

didn’t attempt to rent it.”    It appears, however, that

petitioner’s wife rented the property for relatively short

periods in 2003 and 2004 and that petitioners’ children also used

the property.4    In 2005 petitioner attempted to sell the property

but had no offers.

          3.     1455 Ocean Drive, Miami, Florida

     Through his S corporation petitioner owned two units in a

high-rise condominium building at this address.5    He bought these


     4
      A letter in evidence, dated July 30, 2004, to petitioner
from his wife indicates that “The children and guest stay in the
villa” and that she had rented this property “for two months so
far as well as last season for two months.” The letter also
states that the property was unavailable for rent in 2002 because
of refurbishment activity.
     5
      Petitioner testified at length that he owned one of these
                                                   (continued...)
                                  - 9 -

units new in 1998 and never rented them.    In November 2004 he

listed one of the units with a realtor.    A purchaser for one of

the units was found at the end of 2005; the sale closed in 2006.

     C.   Batts Neck Plantation

     This property is on Kent Island in Stevensville, Maryland,

about 30 miles from the bank.     Petitioner acquired this property

in 1990 at a foreclosure auction and owned it through his S

corporation.   During the years at issue petitioner also owned

three vacant lots which abutted Batts Neck Plantation.

     Before petitioner acquired it, Batts Neck Plantation had

been a hunting lodge.   It covers hundreds of acres of farmland

along the Chesapeake Bay and has three residential structures:      A

main house built in the 1930s; a barn that has been converted

into guest quarters; and an old caretaker’s house.    Insofar as

the record shows, petitioners never rented out the main house or

the barn at any time before or during the years at issue.    During

the years at issue petitioner frequently stayed at Batts Neck

Plantation and received mail and business communications there.

     The caretaker’s house at Batt’s Neck Plantation is a three-

bedroom, two-bath farmhouse with a detached garage.    During the




     5
      (...continued)
units individually and one through his S corporation, but
petitioners stipulated that both units were owned by petitioner’s
S corporation. Petitioner appears to have reported losses from
both condominiums on his S corporation’s return.
                               - 10 -

years at issue the ex-wife of the former caretaker lived in the

house with her son, paying $900 monthly rent.

     In September 2003 Batts Neck Plantation sustained damage

from Hurricane Isabel, and about a year later it sustained damage

from Hurricane Ivan.   These damages necessitated significant

cleanup and repairs.   During the years at issue petitioner

through his S corporation spent substantial sums on property

maintenance, upkeep, and utility bills for Batts Neck Plantation.

     D.   Washington Harbour Condominiums

     During the years at issue petitioner owned three adjacent

condominium units (206, 207, and 208) in the Washington Harbour

Condominiums (Washington Harbour) in Washington, D.C.6    These

three large units form a separate wing within Washington Harbour

and share a terrace overlooking the Potomac River.

     Petitioner acquired unit 206 in 1986 and initially lived

there.    Around 1995 he acquired units 207 and 208.   Between about

1996 and 1999 he rented unit 206 to various tenants.     He never

rented unit 207 or 208.    Sometimes petitioner would stay in unit

207 or 208 when unit 206 was rented or occupied.

     Around 2003 petitioner began to experience significant water

damage from leaks in his Washington Harbour units.     About this

same time petitioner became embroiled in a dispute with



     6
      Petitioner owned unit 206 in his own name and units 207 and
208 in the name of his S corporation.
                               - 11 -

Washington Harbour about his parking spaces.     These disputes led

to litigation between petitioner and the Washington Harbour

Condominium Owners Association.     Petitioner hired three attorneys

to represent him in this litigation, which continued throughout

the years at issue and beyond.

III.   Petitioners’ Tax Returns

       On their joint Federal income tax returns for 2003, 2004,

and 2005, petitioners reported taxable income from wages,

interest, dividends, pensions and annuities, and Social Security

of $1,230,170, $1,549,918, and $1,214,770, respectively.

Partially offsetting this income, they claimed sizable losses

from real estate activities.      More particularly, on Schedules C,

Profit or Loss From Business, with respect to the properties that

petitioners held directly they reported nonpassive losses of

$265,514, $263,170, and $253,028 for 2003, 2004, and 2005,

respectively.    Additionally, on Schedules E, Supplemental Income

and Loss, with respect to the properties that the S corporation

held, they reported nonpassive flowthrough losses of $459,889,

$567,942, and $486,309, for 2003, 2004, and 2005, respectively.

       In the notice of deficiency respondent recharacterized all

the claimed losses as passive losses from rental activities.
                                - 12 -

Pursuant to section 469 respondent disallowed most of these

losses.7

                                OPINION

I.   The Parties’ Contentions

      Respondent’s primary position, as reflected in the notice of

deficiency, is that the losses at issue are subject to the

section 469 limitations because they are attributable to rental

activities.8   Petitioners do not contest that most of the losses

at issue are attributable to rental activities.9   But petitioners


      7
      Respondent allowed these losses to the extent of net
passive income, including from sales of business property, as
reported on Schedule E.
      8
      After trial respondent amended his answer to assert,
alternatively, that pursuant to sec. 212(2) petitioners’ claimed
deductions are limited as relating to investment properties and
that pursuant to sec. 280A petitioners’ personal use of the
Washington Harbour condominiums and Batts Neck Plantation
precludes the deduction of any expenses relating to these
properties. Respondent acknowledges that he has the burden of
proof on these new issues. See Rule 142(a)(1). On brief
respondent states that if the Court upholds the notice of
deficiency, it is unnecessary for the Court to address these
alternative positions. Because we uphold the notice of
deficiency, we do not further address respondent’s alternative
positions.
      9
      As indicated in our findings of fact, during the years at
issue petitioners actually engaged in very little rental activity
with respect to any of their properties, although they had rented
some of these properties in earlier years. Nevertheless, with
limited exceptions discussed below, petitioners do not dispute
respondent’s primary position that the losses at issue emanated
from rental activities with respect to these properties. To the
contrary, while acknowledging that by 2003 petitioner had “grown
old and tired of the upkeep required for his properties”, they
contend that during the years at issue, as in previous years, his
                                                   (continued...)
                              - 13 -

contend that the losses are not from per se passive activities

because petitioner was a real estate professional who spent more

than 750 hours for each year at issue performing services in real

property trades or businesses in which he materially

participated.10

II.   Burden of Proof

      The taxpayer generally bears the burden of proving that the

Commissioner’s determinations are erroneous.   Rule 142(a); Welch

v. Helvering, 290 U.S. 111, 115 (1933).   In particular, the

taxpayer bears the burden of substantiating the amount and

purpose of each item claimed as a deduction.   See Higbee v.

Commissioner, 116 T.C. 438, 440 (2001); Hradesky v. Commissioner,

65 T.C. 87, 90 (1975), affd. per curiam 540 F.2d 821 (5th Cir.

1976).

      Petitioners contend that pursuant to section 7491(a) the

burden has shifted to respondent to prove that petitioner was not

a real estate professional.   If in any court proceeding a

taxpayer introduces credible evidence with respect to any factual

issue relevant to ascertaining the taxpayer’s proper tax


      9
      (...continued)
primary purpose in holding the properties was “for rental”
notwithstanding that he was looking ultimately to liquidate the
properties. Because petitioners agree with respondent’s primary
position that the losses in question emanate from rental
activities, we assume without deciding that this is the case.
      10
      Petitioners do not contend that Nancy Harnett was a real
estate professional.
                               - 14 -

liability, and if certain other requirements are met, the

Commissioner shall have the burden of proof with respect to that

issue.   Sec. 7491(a)(1).   Credible evidence is evidence the Court

would find sufficient upon which to base a decision on the issue

in the taxpayer’s favor, absent any contrary evidence.   See

Higbee v. Commissioner, supra at 442.    Section 7491(a)(1)

applies, however, only if the taxpayer complies with all

substantiation and recordkeeping requirements under the Code and

cooperates with the Commissioner’s reasonable requests for

witnesses, information, documents, meetings, and interviews.

Sec. 7491(a)(2)(A) and (B).

     As explained below, our decision turns primarily on whether

petitioner performed more than 750 hours of services during each

year at issue in real property trades or businesses.    Attempting

to meet this requirement, petitioners rely heavily on

petitioner’s testimony which, as described in more detail below,

we find to be vague, exaggerated, and unsupported or contradicted

by other evidence that petitioners have offered.   Petitioners

have failed to present credible evidence sufficient to establish

that petitioner meets the 750-hour requirement.    Whether this be

viewed as failure to satisfy the substantiation prerequisite of

section 7491(a)(2)(A) or as failure to present credible evidence

sufficient for the Court to render a decision in petitioners’
                                - 15 -

favor, the result is the same--the burden of proof remains with

petitioners.    See Dunn v. Commissioner, T.C. Memo. 2010-198.

III.    Passive Activity Loss Rules

       Section 469(a)(1) limits the deductibility of losses from

certain passive activities of individual taxpayers and certain

other entities.     Disallowed passive losses generally may be

carried over to the next year.     Sec. 469(b).   Generally, a

passive activity is a trade or business in which the taxpayer

does not materially participate.      Sec. 469(c)(1)(B).   Material

participation is defined generally as regular, continuous, and

substantial involvement in the business operations.        Sec. 469(h).

       Generally, rental activities are per se passive activities,

whether or not the taxpayer materially participates.       Sec.

469(c)(2).     As an exception to this general rule, the rental

activities of taxpayers in real property trades or businesses

(real estate professionals) are not treated as per se passive

activities but rather as trade or business activities, subject to

the material participation requirements of section 469(c)(1).

Sec. 469(c)(7); see also sec. 1.469-9(e)(1), Income Tax Regs.

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

professional 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
                              - 16 -

           (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.

      In the case of a joint return, these requirements are met

if, and only if, either spouse separately satisfies them.    All of

a taxpayer’s real estate activities are taken into account to

determine whether the 750-hour requirement is satisfied.    See

Fowler v. Commissioner, T.C. Memo. 2002-223; Bailey v.

Commissioner, T.C. Memo. 2001-296.

      The regulations set forth these requirements for

establishing a taxpayer’s hours of participation:

      The extent of an individual’s participation in an
      activity may be established by any reasonable means.
      Contemporaneous daily time reports, logs, or similar
      documents are not required if the extent of such
      participation may be established by other reasonable
      means. Reasonable means for purposes of this paragraph
      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).]

The regulations do not allow a postevent “ballpark guesstimate”.

Moss v. Commissioner, 135 T.C. 365, 369 (2010).

IV.   Analysis of Petitioner’s Claimed Hours of Participation

      Petitioner did not maintain a contemporaneous log of time

spent participating in his real estate activities.    In 2008, in

preparation for respondent’s audit, he attempted to reconstruct

the time he spent in his real estate activities.    He claims to
                              - 17 -

have spent months going through his records to arrive at these

reconstructed estimates, but petitioners have not demonstrated

the evidentiary basis or methodology for these reconstructions.

At trial petitioner testified that on the basis of these

reconstructions he estimated spending 1,270 hours managing his

real estate properties in 2003, 1,421 hours in 2004, and 1,648

hours in 2005.   As discussed in more detail below, the

contemporaneous records that petitioners have offered into

evidence do not credibly support these estimates.

     A.   The Pennsylvania Properties

     Petitioner claims to have spent hundreds of hours each year

performing services with respect to his Pennsylvania properties.

For the reasons described below, we do not find these claims

convincing, especially considering that for several of these

properties, it appears to have been petitioner’s nephew, Robert

Goldie, who generally checked on the properties; cleaned,

maintained, and repaired them; met with contractors; and marketed

the properties to potential renters or purchasers.   Petitioner

did not mention Robert Goldie’s involvement in these properties

at trial other than, perhaps, by referring vaguely to

“contractors”.   Petitioner testified vaguely that he visited his

Pennsylvania properties “many times” during the years at issue,

but his calendar, which is in evidence, contains no indication

that he traveled to Pennsylvania during these years, although it
                                - 18 -

does indicate that during these years he frequently attended to

bank business and had many social engagements and medical

appointments in the Washington, D.C., area.

          1.   116 and 118 East North Avenue, Allison Park,
               Pennsylvania

     Petitioner testified that he spent 134 hours in 2003 and 111

hours in 2004 with respect to these properties.    He testified

that he met with various contractors and “worked right beside

them” on these properties.   The only invoices from contractors in

the record, however, are from Robert Goldie and a heating

contractor, and Robert Goldie billed petitioner for meeting with

the heating contractor.   By way of example, in September 2003

Robert Goldie billed petitioner for over 200 hours of labor over

the course of several months.

     Petitioner testified that he advertised this property by

putting up signs and that he met with “countless numbers” of

potential renters or buyers.    Invoices indicate, however, that

Robert Goldie installed a sign on the property, showed the

property to potential renters or buyers, and acted as a contact

between petitioner and the buyer on at least one occasion.

Although petitioner testified that he personally cleaned up the

property and dug out debris, Robert Goldie billed petitioner for

cleaning inside the property and cleaning garbage, debris, and

weeds from outside the building.
                                 - 19 -

            2.    1620 Golden Mile Highway, Monroeville, Pennsylvania

     Petitioner testified that he spent 146 hours in 2003, 164

hours in 2004, and 134.5 hours in 2005 meeting with contractors,

reviewing bids, supervising renovations to this property, and

trying to sell it.     Robert Goldie’s invoices indicate, however,

that it was he who met with a roofing contractor, had the

contractor fix a leak, and discussed the leak with another

individual.      Invoices from roofing contractors indicate that they

corresponded with and billed Robert Goldie, not petitioner.

There are no invoices in the record from any contractors other

than these roofing contractors and Robert Goldie.

     The parties have stipulated that during a 6-month period in

2003 petitioner “touched base via telephone” with his real estate

agent every couple of weeks regarding the attempted sale of this

property.    In 2005, petitioner considered a purchase offer that

was contingent upon rezoning the property.     Petitioner testified

that he met with attorneys that he had retained in July 2005 to

pursue rezoning this property.     But apart from the engagement

letter, the only evidence of interactions between the attorneys

and petitioner is a check for $1,000 that petitioner paid them as

a retainer.      Although petitioner has not expressly assigned any

estimate of the time he might have spent in communicating with

his real estate agent, lawyers, or potential buyers of this

property, we are not persuaded that the hours petitioner spent in
                                - 20 -

these activities, or in any other activities relating to this

property, remotely approach the hours that he has claimed.

            3.   303 Forestwood Drive, Gibsonia, Pennsylvania

     Petitioner testified that he spent 115 hours in 2003, 136

hours in 2004, and 140.5 hours in 2005 with respect to this

property.    Petitioner testified that he spent these hours

performing upkeep and maintenance, making repairs, and attempting

to sell the property.    He testified that in 2005 he tore down a

stone wall alongside the driveway on this property, piled the

stones to be hauled away, and rebuilt the wall.     But an invoice

from Robert Goldie dated October 22, 2007, indicates not only

that the wall was not repaired during the years at issue but also

that it was Robert Goldie rather than petitioner who ultimately

tore down the stone wall, hauled away the stone, and installed a

new wall.    In fact, although the record contains over 100 pages

of documentary evidence about this property, none of it indicates

repairs or improvements made to this property during the years at

issue or suggests that petitioner performed any services with

respect to this property or even visited it.

            4.   516 Edgehill Drive, Gibsonia, Pennsylvania

     Petitioner testified that he spent 115 hours in 2003, 136

hours in 2004, and 161 hours in 2005 discussing with a real

estate agent the sale of this property and “cleaning up and doing

small things, repairing baseboards and trying to clean it so it
                              - 21 -

would show better”.   But the documents in the record suggest that

it was petitioner’s wife who was generally responsible for

cleaning and maintaining this property and that in fact this

maintenance had not occurred as of June 2005.11   The time

petitioner’s wife spent working on the property cannot be taken

into account in determining whether petitioner was a real estate

professional.   See sec. 469(c)(7)(B).

     Petitioner also testified that he had contractors who worked

on this property.   But petitioner never specifically identified

these contractors or elaborated on his involvement with them.

The only invoices from contractors in the record indicate that

the real estate agent coordinated with a plumbing contractor to

test and repair the plumbing and that petitioner’s involvement

was limited to signing a proposal that was faxed to him and

sending a check.

      For 2004 and 2005 petitioner testified that he visited the

property “As many hours as it took to accomplish that sale.”     As

previously noted, however, petitioner’s calendar indicates no

trips to Pennsylvania.   Moreover, the documents in the record

indicate that petitioner generally received updates on the status

and sale of the property from the real estate agent by telephone

or fax to the bank or Batts Neck Plantation.   The documentary


     11
      In a memorandum to his real estate agent dated June 14,
2005, petitioner complained about the condition of this property
and stated that he hoped to be able to convince his wife that “a
general clean up inside and out is mandatory.”
                               - 22 -

evidence does not indicate any greater involvement on

petitioner’s part than reviewing the listing agreement and any

offers and signing documents that were mailed to him.     When the

property was sold in 2005, the real estate agent signed the

settlement documents on petitioner’s behalf.

          5.    Kim Brett Drive, Allison Park, Pennsylvania

     Petitioners claimed no deductions with respect to this

vacant land.    But petitioner testified that he spent 38.5 hours

in 2003 subdividing this land and dealing with a homeowners

association about problems arising from the subdivision.      The

documentary evidence does not substantiate that petitioner

personally handled any such tasks.      Petitioner testified that he

also spent 5.5 hours in 2004 and 1 hour in 2005 receiving calls

from individuals interested in purchasing lots, but he made no

sales.

     On brief petitioners do not contend that petitioner

materially participated with respect to this property; rather,

petitioners assert that because this was not a rental property it

is “irrelevant” whether he materially participated.     Petitioners

are mistaken.   In order to qualify as a real estate professional,

a taxpayer must “[perform] 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)(ii)

(emphasis added).   We deem petitioners to have waived any
                                 - 23 -

argument that petitioner materially participated with respect to

this property.     Consequently, any hours that petitioner spent

with respect to this property do not count toward the 750-hour

requirement.

            6.    Laurel Lane, Allison Park, Pennsylvania

     Petitioners claimed no deduction with respect to this vacant

land.     But petitioner testified that he spent 11 hours in 2003,

4.5 hours in 2004, and 1 hour in 2005 trying to sell this vacant

land and having discussions with builders.     He also testified

that he visited the property once in 2003 to see whether someone

was parking cars there.     As with the other property just

discussed, petitioners contend that it is “irrelevant” whether

petitioner materially participated with respect to this property.

We deem petitioners to have waived any argument that petitioner

materially participated with respect to this property.

Consequently, as just discussed, hours spent with respect to this

property do not count toward the 750-hour requirement.

     B.     Petitioner’s Miami, Florida, Properties

             1.   770 N.E. 69th Street, Miami, Florida

     Petitioner testified that he spent 117.5 hours in 2003 and

130.5 hours in 2004 visiting and doing work associated with this

property.     The only specific activities petitioner testified to,

however, were hiring a pest control company (Terminix), directing

his bookkeeper to handle a dispute over the payment of
                                    - 24 -

condominium association fees, and negotiating the sale with the

purchaser’s broker.        A $59 Terminix bill does appear in the

record.        The documents in the record confirm that petitioner’s

bookkeeper handled the fees dispute.          The record also strongly

suggests that petitioner’s wife was more directly involved in the

transaction than petitioner, whose involvement appears to have

been limited to communicating, from Maryland, with his wife and

attorneys in Florida.12        The time petitioner’s wife spent

handling the sale of the property, however, cannot be taken into

account in determining whether petitioner was a real estate

professional.        See sec. 469(c)(7)(B).   Petitioners ultimately

appointed someone with a power of attorney to handle the sale for

them.        We are not persuaded that these various activities were

nearly as time consuming for petitioner as his testimony would

indicate.

                2.   15511 Fisher Island Drive, Miami, Florida

        Petitioner testified that he spent 22 hours in 2003, 32.5

hours in 2004, and 34 hours in 2005 managing this vacation rental

property on Fisher Island Drive in Florida, including doing minor

upgrades and corresponding with renters.          Seemingly

inconsistently, however, he also testified that he “didn’t

attempt to rent” the property during the years at issue.



        12
      The record contains a letter, dated July 2, 2004, to
petitioner from his wife complaining about petitioner’s lack of
responsiveness to communications about this property and urging
him to cooperate.
                                - 25 -

Documentary evidence suggests that petitioner’s wife may have

handled some short-term rentals of the property during the years

at issue, that petitioners’ children and guests also stayed in

the condominium, and that the property was refurbished in 2002.

As previously stated, the time petitioner’s wife spent with

respect to the condominium cannot be taken into account in

determining whether petitioner was a real estate professional.

See sec. 469(c)(7)(B).

            3.   Condominiums at 1455 Ocean Drive, Miami, Florida

     Petitioner testified that he spent 209 hours in 2003, 195.5

hours in 2004, and 318.5 hours in 2005 improving these two

condominiums.    On their joint Federal income tax returns

petitioners claimed losses from these properties of $65,823 for

2003, $57,067 for 2004, and $62,169 for 2005.    On brief

petitioners concede that they are not entitled to these claimed

losses because these were not rental properties and these

expenses should have been capitalized rather than currently

deducted.    Petitioners contend, however, that hours petitioner

spent on these properties during the years at issue should be

counted toward the 750-hour requirement.    As with certain other

properties previously discussed, petitioners do not contend that

petitioner materially participated with respect these properties;

rather, they assert that it is “irrelevant” whether he materially

participated.    We deem petitioners to have waived any argument
                               - 26 -

that petitioner materially participated with respect to these

properties.    Consequently, as previously discussed, hours spent

with respect to these properties do not count toward the 750-hour

requirement.

     In any event, we are not convinced that petitioner spent the

number of hours claimed with respect to these properties during

the years at issue.   Petitioner testified that the units were

refurbished during the years at issue, that he did some of the

work himself, that he hired contractors to do some of the work,

and that he decorated and furnished the units and marketed them

for sale each year, although neither unit sold during the years

at issue.   But the hundreds of pages of exhibits relating to this

property contain no evidence that improvements were made to these

units during the years at issue.   Rather, the record suggests

that these properties, which petitioner purchased new in earlier

years and never rented, were in no need of significant

refurbishment.13   The correspondence to and from petitioner

regarding the sale of the unit that closed in 2006 show his

address as being either at the bank in Maryland, Batts Neck

Plantation, or unit 208 at Washington Harbour.   This circumstance

calls into question whether petitioner spent very much time

personally tending to the marketing and sale of these properties.


     13
      A handwritten memorandum dated Nov. 18, 2005, regarding
the unit that was sold in 2006 indicates that no one had ever
occupied the unit and that the appliances and beds had never been
used.
                              - 27 -

     C.   Batts Neck Plantation

     Petitioner testified that he spent 72 hours in 2003, 8 hours

in 2004, and 105 hours in 2005 working on this property.   He

testified that he personally spent time renovating the barn,

making hurricane-related repairs, and attempting to rent or sell

the property.   Petitioner testified that he spent time meeting

with contractors, assisting unspecified workers, and doing work

on his own.   Specifically, petitioner testified that he installed

new siding and shutters on the barn, “[jacked] the place up” to

prepare for a new foundation for the barn, and made forms for the

foundation footer.

     Especially in the light of petitioner’s age, health

problems, and station in life, we question this testimony, which

in any event is not corroborated by other evidence.   Neither of

the two contractors who testified at trial observed petitioner

doing any work on the property.    In fact, one contractor who had

handled plumbing jobs at the property for many years, when asked

if he had ever observed petitioner working at the property,

testified that petitioner met him at the property only to review

his progress and make sure they were “on the same page”.   The

other contractor, who spent about a month repairing the pier

after a hurricane, testified that he never saw petitioner working

on the property and that petitioner was not usually present at

the property while he was there.   The contractor testified that
                              - 28 -

his interaction with petitioner consisted of three or four phone

calls and three or four instances in which petitioner would show

up to see his progress.

     Petitioner testified that he advertised Batts Neck

Plantation, showed the property, and talked to potential buyers

or renters but that he “didn’t get to the point where * * * [he]

could sell it.”   The documentary evidence related to this

property is contained in unorganized fashion in three-ring

binders mixed in with receipts for shoes, clothing, jewelry, and

restaurant meals.   Petitioner does not direct our attention to,

and we are unable to find, any copies of advertisements, listing

agreements, or other evidence that petitioner ever listed the

property for rent or sale or spent any substantial amount of time

attempting to rent or sell the property.

     Finally, although we do not address respondent’s alternative

argument that petitioner resided at Batts Neck Plantation during

the years at issue--an issue as to which respondent would have

the burden of proof, see supra note 8--we cannot ignore extensive

evidence indicating that petitioner often stayed at Batts Neck

Plantation during the years at issue.   We believe that some of

the hours petitioner claims with respect to this property were

related to his stays there.

     Petitioner also testified that he spent 10.5 hours in 2003,

7 hours in 2004, and 14 hours in 2005 with respect to the three
                               - 29 -

vacant lots that abutted Batts Neck Plantation.    He testified

that he spent time talking with the owner of an adjoining

property about selling the vacant lots and working to get

approval for a septic tank.    As with other properties previously

discussed, however, he does not contend that he materially

participated with respect to these lots but instead asserts that

it is “irrelevant” whether he materially participated with

respect to these lots.   For the reasons previously discussed, we

deem petitioners to have waived any argument that petitioner

materially participated with respect to these vacant lots and

consequently do not count these hours toward the 750-hour

requirement.

     D.    Washington Harbour Condominiums

     Petitioner testified that he spent 298.5 hours in 2003, 485

hours in 2004, and 723.5 hours in 2005 working on this property,

dealing with water damage and prosecuting his lawsuit against the

condominium association.    To represent him in this litigation,

petitioner hired three attorneys, two of whom testified at trial

before this Court.    One of these attorneys testified that she

spent “probably dozens of hours” between 2004 and 2008 working

with petitioner on the litigation, although she could not state

the specific number of hours she worked with him in either 2004

or 2005.    The other attorney testified that he billed petitioner

for 20 to 30 hours in 2004 and for 60 to 80 hours in 2005 but
                              - 30 -

that only a portion of those hours was spent working with

petitioner.

     Petitioner testified that he spent time emptying buckets

placed throughout the units to collect leaking water, covering

furniture to protect it, mopping, and removing debris.

Petitioner also testified that he met with the head of the

condominium association construction committee, engineers, and

the owner of another unit into which water was leaking from his

units, and spoke with exterminators hired by the condominium

association when he let them into his units.   Petitioner

testified that he visited the units to “[watch] things go on and

make sure they did something about it”.   We are not convinced

that petitioner spent several hundred hours each year engaged in

the activities described.

     Finally, as stated with respect to Batts Neck Plantation,

although we do not address respondent’s alternative argument that

petitioner resided at Washington Harbour during the years at

issue--an issue as to which respondent would have the burden of

proof, see supra note 8--we cannot ignore extensive evidence

indicating that petitioner often stayed there during the years at

issue.   We believe that some of the hours petitioner claims with

respect to these properties were related to his stays there.
                              - 31 -

     E.   La Plata, Maryland Property

      Before the years at issue, petitioner had owned an interest,

through a partnership, in this single-family home.   Petitioner

testified that he spent 16 hours in 2003, 6 hours in 2004, and 15

hours in 2005 attempting to collect delinquent mortgage payments

from the former tenant of this property and having conversations

concerning the former tenant’s lapsed insurance policy.   On brief

petitioners fail to make any argument with respect to this

property.   We deem them to have conceded the hours claimed with

respect to this property.

V.   Conclusion

      Although petitioner spent some time dealing with his various

properties during the years at issue and attempting to sell some

of them, primarily through agents and brokers, we are not

convinced that he performed more than 750 hours of services with

respect to these properties during any year at issue.   By 2003

petitioner had ceased to rent these properties to any significant

extent and was looking to liquidate at least some of them.    He

was in ill health and had important duties at the bank.   The

properties were widely dispersed geographically.   To a great

extent he relied upon various agents, brokers, lawyers, and

contractors as well as his wife, Robert Goldie, and Jeana Hopkins

to deal with these properties.
                              - 32 -

     Petitioners suggest that because petitioner owned so much

real estate, which they say was worth over $30 million, he

necessarily must have spent at least 750 hours each year managing

these properties.   Yet petitioner also testified that during the

years at issue he spent only about 10 hours a month working at

the bank.   Considering that for most of this period he was both

chairman of the board and CEO of the bank, with wide-ranging

responsibilities and six-figure compensation, this testimony

strains credibility.   But if this testimony is to be believed, we

see no reason to think that managing his mostly dormant real

estate holdings would have required petitioner to spend anywhere

near 750 hours each year.   And if the testimony is not to be

believed, petitioner’s lack of credibility on this score further

erodes his credibility about the hours he claims to have spent on

his real estate activities.

     We conclude and hold that petitioners have failed to

establish that for any year at issue petitioner meets the 750-

hour requirement to qualify as a real estate professional for

purposes of section 469(c)(7).14   Consequently, we sustain

respondent’s determination that the losses at issue are




     14
      In the light of this holding, it is unnecessary to decide
whether petitioner spent more than 50 percent of his time in real
estate trades or businesses or whether he materially participated
in them.
                             - 33 -

attributable to per se passive activities and are subject to the

section 469 limitations.


                                        Decision will be entered

                                   for respondent.
