Gregory J. Farris of Gardiner, Maine, owned the building that he rented to his legal practice.

He made a profit on the rent and characterized the profit as coming from a passive activity, which he used to offset passive losses from other properties. The IRS disagreed with the passive income classification and asked Mr. Farris for additional taxes of $13,259; $17,251; and $17,482 for the three years before the court.

The court had a simple decision: if the income from ... Log in to view full article.