Question

In the following set of problems, determine whether or not there is "rental activity" for purposes of IRC §469.

a.         MacroComputer Corporation is engaged in the business of leasing computer equipment. The average period of customer use of the equipment exceeds 35 days. In accordance with the lease agreement, employees of Macro service and maintain the equipment at no additional charge. Service calls occur frequently and may require substantial labor. The value of the service and maintenance represent in excess of 50% of the amount charged for the use of the equipment.

b.         The Maui Palms Corporation owns and operates a 100 unit condominium complex in Maui. The company rents the fully furnished units to vacationers. The average period of customer use is 10 days. The corporation provides daily maid services as well as a shuttle service to and from the airport. In addition, the company maintains the buildings and common areas, provides for trash collection and security at the entrance and perimeters.

c.         The Ajax Manufacturing Company in 19XX acquired 15 acres of land adjacent to their plant facility. The purchase price was $400,000. Its fair market value in 20XX is $700,000. Until such time as the property is needed for expansion, the company will lease it to the local Honda dealership as storage for the dealer's excess inventory. In 20xx, the dealer paid $80,000 in rent.

Answer 1

A.Since average period of customer use of equipment exceeds 35 days and the value of the service and maintenance exceeds 50% of the amount charged for the use of the equipment, there is no “rental activity” for purposes of Temp. Reg. §1.469-1T(e)(3)(ii)

b. since the company rents the full furnished units if condominium complex and the average period of customer use ismore than 7 days, there is “rental activity” for purposes of Temp. Reg. §1.469-1T(e)(3)(i)(A).

c. Since Ajax’s rented property is used as a storage for excess inventory for Honda, there is no “rental activity” for purposes of Temp. Reg. §1.469-1T(e)(3)(ii)(D)