                        T.C. Memo. 1996-510



                      UNITED STATES TAX COURT



     ROBERT SERENBETZ AND KAREN J. SERENBETZ, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 1397-94.             Filed November 18, 1996.



     Robert and Karen J. Serenbetz, pro sese.

     Margaret S. Rigg, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     JACOBS, Judge:   By separate notices of deficiency, both dated

December 17, 1993, respondent determined the following deficiencies

in petitioners' Federal income taxes:

          Year                      Deficiency

          1991                      $8,256.75
          1992                       7,810.00
                                  -2-

     The dispute between the parties concerns the deductibility of

losses   reported   by   petitioners    in   1991   and     1992   that   are

attributable to their Vermont resort condominium.1          In this regard,

we must decide whether the losses constitute passive activity

losses under section 469(a), which in turn depends upon whether

petitioners    materially   participated     in   the   rental     of   their

condominium.

     All section references are to the Internal Revenue Code in

effect for the years under consideration.         All Rule references are

to the Tax Court Rules of Practice and Procedure.

                            FINDINGS OF FACT

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

stipulation of facts and the attached exhibits are incorporated

herein by this reference.

     Petitioners,    husband    and     wife,     resided     in   Newtown,

Pennsylvania, at the time they filed their petition. They timely

filed joint Federal income tax returns for 1991 and 1992, the 2

years under consideration.

     1
          In another notice of deficiency, dated Oct. 18, 1993,
respondent determined a deficiency in petitioners' 1990 income
tax. That deficiency was also based on respondent's disallowance
of a loss attributable to petitioners' Vermont resort
condominium. Petitioners disputed the determinations set forth
in all three notices of deficiency in a letter to the Court,
dated Jan. 13, 1994, which we received and filed as an imperfect
petition on Jan. 19, 1994. The letter was delivered to the Court
by Federal Express, and thus did not bear a United States
postmark. Because Jan. 19, 1994, is the 93rd day after the
notice of deficiency for 1990 was mailed to petitioners, we
granted respondent's motion to dismiss and strike year 1990.
                                          -3-

     Robert Serenbetz is a business executive.                    During the years

under consideration, he was the president and chief operating

officer    of    DNA    Plant    Technology     Corporation,      an    agricultural

biotechnology company.           Prior thereto, he was a vice president of

Warner-Lambert Co. and the president of American Chicle.                                Mrs.

Serenbetz is a homemaker.

     During the years under consideration, petitioners owned a

condominium       in    Notch    Brook    Resort      Condominiums,          a    50-unit

development located in Stowe, Vermont (the                Vermont condominium).

All condominium owners were members of the condominium association,

and those condominium owners who wished to rent their units to

third parties were partners in the Notch Brook Hotel Condominium

Partnership (the partnership).              Petitioners were members of the

partnership, as were about 40 other owners.

     The    condominium         association     was    governed    by    a       board   of

directors.      Mr. Serenbetz was a member of the board of directors of

the condominium association in both 1991 and 1992.                     That board met

on a regular basis, and Mr. Serenbetz sometimes participated in

meetings by telephone.             In 1991, Mr. Serenbetz spent 36 hours

preparing       for    and   attending     meetings,     reviewing       minutes          of

meetings, and discussing the meetings with his wife. Mr. Serenbetz

spent 22 hours in 1992 preparing for and attending board meetings

and reviewing minutes of the board meetings.

     The day-to-day rental operation of the partnership was run and

managed    by    an    on-site    staff    of   nine    employees       of       both    the
                                    -4-

partnership and the condominium association. The employees include

a manager, assistant manager, bookkeeper, front-desk staff person,

housekeepers, and maintenance staff.        The employees maintained the

partnership books and records, maintained the units and grounds,

and marketed and advertised the rental operation.             The partnership

pays for the property insurance, utilities, and repairs of the

units owned by its partners.

     The expenses from all of the partners' units were pooled and

shared   ratably    among   the    partners      based   on   the    partner's

partnership interest (which was based on his interest in the

condominium association) and the number of days each unit was

available   for    rent   during   the   year.     Petitioners      shared   in

partnership rental income for each day their unit was available for

rent, even if it was not actually rented.

     Under the partnership agreement, each unit owner is entitled

to use his unit without charge for no more than 4 weeks during the

winter season and 4 weeks during the summer season.                 Should the

unit owner occupy his unit more than his/her allotted time, he is

charged 50 percent of the established regular seasonal hotel rate.

There is no limitation on the owner's occupancy during the other

periods of the year.      Petitioners and/or their children used their

condominium less than 10 days during each year under consideration.

     For the years under consideration, petitioners reported the

income and expenses of their Vermont condominium as a trade or

business activity on Schedule C of their tax return.            In 1991, they
                                      -5-

reported   rental    receipts   of    $1,814    and   expenses    of   $27,643,

resulting in a loss of $25,829.        In 1992, they had $4,368 in rental

receipts and $28,353 in expenses, resulting in a loss of $23,985.

Petitioners used these losses to offset other income.              In 1991 and

1992,   petitioners    reported      taxable    income    of   $3,925,065     and

$307,638, respectively. Respondent determined that the losses from

the Vermont condominium constitute passive activity losses within

the meaning of section 469(a) and accordingly disallowed most of

the losses in the years under consideration.

                                  OPINION

     Pursuant   to    section   469(a),     a   passive    activity    loss    is

generally not allowed as a deduction for the year sustained.

Section 469(d)(1) defines a passive activity loss as the amount by

which (A) the aggregate losses from all passive activities for the

taxable year exceed (B) the aggregate income from all passive

activities for such year.       Passive activities are those activities

which involve the conduct of a trade or business in which the

taxpayer does not materially participate. Sec. 469(c)(1).                Rental

activity ordinarily is treated as a passive activity irrespective

of whether there was material participation.             Sec. 469(c)(2), (4).

However, an exception exists for rental activity in which the

average rental is no more than 7 days. Sec. 1.469-1T(e)(3)(ii)(A),

Temporary Income Tax Regs, 53 Fed. Reg. 5702 (Feb. 25, 1988).                  In

the instant case, the parties agree that the average rental period

for petitioners' Vermont condominium was less than 7 days.
                                       -6-

       Petitioners contend that they materially participated in the

rental of their Vermont condominium, thus making section 469(a) not

applicable.     "Material participation" in an activity is defined as

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

       Petitioners   contend    that     they   satisfy    the   safe    harbor

requirements of section 1.469-5T(a)(3), Temporary Income Tax Regs.,

53 Fed. Reg. 5702 (Feb. 25, 1988), for material participation.

That section permits a finding of material participation if:

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

Id.

       Petitioners claim they spent 139 hours in the involvement of

the operations of the rental of their Vermont condominium in 1991,

and 115.5 hours in 1992.       In this regard, they testified (by using

a     written   activities      list     that    was      prepared      from   a

contemporaneously kept diary) as to specific tasks they performed

during the years under consideration.            Their written activities

list for 1991 shows 7 hours spent preparing Federal and State

income tax returns, 20 hours traveling to and from Vermont for the

annual meeting and party of the condominium association, and 36

hours preparing for, attending, discussing, and reviewing minutes

of meetings of the condominium association, its Board of Directors,

and the partnership. The 1991 written activities list also records
                                -7-

several hours for reviewing equipment and operating budgets and for

paying   property    taxes,   special   condominium   assessments,

housekeeping bills, and maintenance bills. Similar activities were

recorded on the 1992 written activities list.



     Investor activities do not qualify as participation in a trade

or business unless the individual is directly involved in the day-

to-day management or operations of the activity. Sec. 1.469-

5T(f)(2)(ii), Temporary Income Tax Regs., 53 Fed. Reg. 5727 (Feb.

25, 1988).   Much of petitioners' activities during 1991 and 1992,

like those described above, are investor activities or activities

of a personal nature that do not qualify as participation in a

trade or business. See Toups v. Commissioner, T.C. Memo. 1993-359;

sec. 1.469-5T(f)(2)(ii), Temporary Income Tax Regs., 53 Fed. Reg.

5727 (Feb. 25, 1988).

     The financial work done by petitioners was in connection with

their investment. The Treasury regulations provide that "Work done

by an individual in the individual's capacity as an investor in an

activity shall not be treated as participation in the activity for

purposes of this section [sec. 469] unless the individual is

directly involved in the day-to-day management or operations of the

activity." Sec. 1.469-5T(f)(2)(ii)(A), Temporary Income Tax Regs.,

53 Fed. Reg. 5727 (Feb. 25, 1988). Here, the day-to-day management

or operations of the partnership was by a full-time staff rather

than petitioners.   See Mordkin v. Commissioner, T.C. Memo. 1996-
                                         -8-

187.

       Based on the record before us, we are unable to conclude that

petitioners spent more than 100 hours participating in the rental

activities of their Vermont condominium during 1991 or 1992.

However,     assuming    arguendo    that       they   did,   we   believe    that

petitioners'    participation       in    the   rental    activities    of   their

Vermont condominium was less than that of other individuals. Thus,

they do not come within the safe harbor requirements of section

1.469-5T(a)(3), Temporary Income Tax Regs., 53 Fed. Reg. 5726 (Feb.

25, 1988).

       Petitioners contend that although the partnership's rental

activities were conducted by an on-site staff of nine employees,

the number of on-site employees (9), should be divided by the

number of units in the partnership (40) and when that is done, it

is unlikely that any of the nine on-site employees could have spent

more than 40 hours on petitioners' unit during 1991 or 1992.                 We do

not agree with petitioners' logic.               The language of sec. 1.469-

5T(a)(3),    Temporary    Income    Tax    Regs.,      contains    nothing   which

suggests that participation should be computed on a per unit basis.

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

       It is settled law that taxpayers bear the burden of proving

the determinations of the Commissioner in a notice of deficiency

are in error.      Rule 142(a); Welch v. Helvering, 290 U.S. 111

(1933).      Petitioners have failed to establish that they were

material participants in the rental activities of their Vermont
                                 -9-

condominium in 1991 or 1992. Consequently, we sustain respondent's

determination   that   petitioners'     losses   during   those   years

constitute passive activity losses under section 469(a).

     To reflect the foregoing,


                                            Decision will be entered

                                       under Rule 155.
