                  T.C. Summary Opinion 2002-79



                      UNITED STATES TAX COURT



              SYLVESTER MONROE, JR., Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 1484-00S.              Filed July 1, 2002.



     Sylvester Monroe, Jr., pro se.

     Stephen J. Neubeck, for respondent.




     CARLUZZO, Special Trial Judge:   This case was heard pursuant

to the provisions of section 7463 of the Internal Revenue Code in

effect at the time the petition was filed.   Unless otherwise

indicated, subsequent section references are to the Internal

Revenue Code in effect for 1996.   The decision to be entered is

not reviewable by any other court, and this opinion should not be

cited as authority.
                                - 2 -

     Respondent determined a deficiency of $3,074 in petitioner’s

1996 Federal income tax.   The issue for decision is whether

petitioner is entitled to a deduction for a rental real estate

loss claimed on the Schedule E, Supplemental Income and Loss,

included with his 1996 Federal income tax return.   The resolution

of this issue depends upon the amount of time that petitioner

spent performing services in connection with his rental real

estate activity during 1996.

Background

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

the time that the petition was filed, petitioner resided in

Columbus, Ohio.   Petitioner was married as of the close of 1996

and lived with his spouse at least for a portion of that year.

He filed a timely 1996 Federal income tax return as a married

individual filing separately.

     Petitioner has been employed with the Ohio Department of

Taxation (the Department) since 1988.   During 1996, petitioner

held a supervisory position at the Department.   Not counting

vacation and sick leave, he worked 1,834 hours for the Department

that year.1

     Over the years, petitioner purchased, and as necessary

renovated, residential real estate properties that he held for



     1
       Petitioner’s compensation from the Department was based on
a 2,080 hour work year.
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rent.   As of the close of 1996, petitioner owned five such rental

properties, one of which was purchased that year.    Two of the

rental properties are four-unit apartment buildings; the other

three properties are two-unit apartment buildings.

     For the most part, petitioner was solely responsible for

managing and maintaining his rental properties.   Among other

things, he met with prospective tenants, negotiated and prepared

leases, collected rent, and, from time-to-time, initiated and

prosecuted eviction proceedings.   He personally made repairs to

his rental properties, and he arranged for repairs to be made by

third-parties.   Petitioner reviewed financial statements, made

monthly payments to various creditors, and developed and

maintained a bookkeeping system for recording the income and

expenses attributable to his rental real estate activity.

     Petitioner maintained a detailed “activity records log” (the

log), updated at least on a weekly basis, in which he recorded

time spent performing personal services in connection with his

rental real estate activity.   According to the log, during 1996

petitioner spent 2,440 hours performing various personal services

in connection with his rental real estate activity, including

1,440 hours of what is described in the log as “phone-in office

hours 360 days a year.”

     On the Schedule E included with his 1996 return petitioner

reported the following income and expenses attributable to his

rental real estate activity:
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               Rental income                 $44,916

               Expenses                       62,101

               Rental real estate loss        17,185

     In the notice of deficiency, respondent, relying upon

section 469, determined that petitioner is not entitled to a

deduction for the rental real estate loss.    Other adjustments

made in the notice of deficiency are not in dispute.

Discussion

     The extent to which petitioner is entitled to a rental real

estate loss deduction is determined by reference to section 469.2

That section sets forth what are commonly referred to as the

passive activity loss rules.   Although those rules are complex

and spawn many disputes between taxpayers and the Commissioner,

the disagreement between the parties in this case is relatively

simple--the parties disagree as to the number of hours that


     2
       In general, an individual is not entitled to a deduction
for a passive activity loss. See sec. 469(a). Except as
provided in sec. 469(c)(7), the term “passive activity” includes
any rental activity. An otherwise deductible loss attributable
to a rental real estate activity and sustained by an individual
who actively participates in that rental real estate activity is
deductible to a limited extent. See sec. 469(i). An otherwise
deductible loss attributable to a rental real estate activity and
incurred by a taxpayer who materially participates in a real
property business is not subject to the limitations imposed by
the passive activity rules because the activity is not considered
a passive activity, if the taxpayer: (1) Performed more than one-
half of his personal services during the year in real property
trades or businesses in which he materially participated and (2)
performed more than 750 hours of services during the taxable year
in real property trades or businesses in which the taxpayer
materially participates. See sec. 469(c).
                                 - 5 -

petitioner spent during 1996 performing personal services in

connection with his rental real estate activity.     All other

requirements of the statutory scheme having been satisfied by

petitioner, the number of hours that he spent performing services

in his rental real estate activity is critical because in order

to be entitled to the deduction here in dispute, petitioner must

establish that those hours exceed the hours that he spent

performing personal services as an employee of the Department.

See sec. 469(c)(7)(B)(i).3

     Not counting vacation and sick leave, petitioner spent at

least 1,834 hours4 performing personal services as an employee of

the Department.   Petitioner’s log indicates that the time he

spent performing personal services in his rental real estate

activity; i.e., 2,440 hours, exceeds the time he spent performing

services as an employee.     However, respondent argues that the

time reported in the log is overstated by the hours identified as

“phone-in office hours 360 days a year” (the disputed hours). The

disputed hours consist of time that petitioner was available to

take telephone calls, rather than the number of hours that he was


     3
       Petitioner does not qualify for a limited deduction for a
loss attributable to rental real estate activity because he did
not live separate and apart from his spouse for all of 1996 and
did not file a joint return for that year with her. See sec.
469(i).
     4
       We need not decide whether vacation and sick leave hours
should be taken into account in the computation of the hours that
petitioner spent performing personal services as an employee of
the Department.
                                 - 6 -

actually involved in telephone conversations.       According to

respondent, the time that petitioner was merely available for

telephone calls should not count as time actually spent providing

personal services in connection with petitioner’s rental real

estate activity.

     The disputed hours total 1,440, well over one-half of the

2,440 hours listed on the log.    At trial, petitioner explained

that generally he could be reached by telephone 24 hours a day by

tenants or others, but he only counted 4 hours a day, from 6 p.m.

to 10 p.m., as time that he spent in his rental real estate

activity.   The disputed hours were not computed with reference to

the amount of time he actually spent on the telephone with

tenants or others.   Petitioner recorded some, but not all, of his

actual telephone calls in the log.       At trial, petitioner was

unable to approximate the number of hours that he actually spent

on the telephone in connection with his rental real estate

activity.

     As we view the matter, allocating 4 hours a day for 360 days

of the year is not a reasonable means of establishing the time

that petitioner actually spent on the phone speaking with tenants

and/or others in connection with his rental real estate activity.

Sec. 1.469-5T(f)(4), Temporary Income Tax Regs., 53 Fed. Reg.

5727 (Feb. 25, 1988).   We find it highly unlikely that petitioner

actually spent that much time speaking on the phone on matters

concerning his rental properties.    Furthermore, according to the
                               - 7 -

log, on numerous occasions during the hours of 6 p.m. and 10

p.m., petitioner was engaged in other activities.   These hours

are also included in the total hours reported in the log, in

effect duplicating, or double counting the same hours.   We accept

petitioner’s claim that he could do more than one thing at any

given time, but any hour within which multiple tasks were

performed should only be counted once.

     Accordingly, we find that the disputed hours cannot be

considered hours spent by petitioner performing personal services

in connection with his rental activities.   Deducting the disputed

hours from the total hours recorded in the log leaves 1,000

hours.   Petitioner performed at least 1,834 hours of services as

an employee of the Department in 1996.   Consequently, he did not

perform more than one-half of his personal services during that

year in real property trades or businesses in which he materially

participated.   Accordingly, respondent’s determination that

petitioner is not entitled to a deduction for the rental real

estate loss he incurred in 1996 is sustained.
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    Reviewed and adopted as the report of the Small Tax Case

Division.

    To reflect the foregoing,

                                        Decision will be entered

                                for respondent.
