Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 79 C 2984 -- Nicholas J. Bua, Judge .
Before Swygert, Sprecher and Bauer, Circuit Judges.
At issue in this appeal is whether under section 280A of the Internal Revenue Code of 1954, as amended, 26 U.S.C. § 280A, a taxpayer who made personal use of his condominium unit for twenty days of the taxable year is entitled to take a deduction for a loss sustained from rental operations when his unit participated in a resort rental pool for 333 days but was rented to resort guests for only 149 days. We hold that section 280A bars the deduction at issue, and for a reason different from that given by the district judge, we affirm the judgment of the district court, 493 F. Supp. 540.*fn1
The facts, as set out by the district court, are as follows:
(Plaintiff), S. Richard Fine, was the co-owner of a condominium unit in a Florida resort complex known as Innisbrook. Mr. Fine, in that year, became a party to a rental pool agreement with the Innisbrook resort management company, pursuant to which his unit was made available for rental to others for a period of 333 days. Under the terms of this pool agreement, the plaintiff was to be compensated to a limited extent for each day his condominium was available for rental, and in a larger amount for each day the unit was in fact rented. During the rental availability period, Mr. Fine was required to surrender his personal right of possession and access to his unit.
In 1976, the plaintiff's unit, during the period covered by the pool agreement, was rented for 149 days and remained unoccupied for (184). Mr. Fine, in addition, occupied the unit on a personal basis, not subject to the rental pool agreement, for 20 days.
493 F. Supp. 540, 541 (N.D.Ill.1980) (footnote omitted). The rental pool agreement provided that thirty-three percent of rentals received would go to the rental pool to be "allocated among the Owners in accordance with their rental pool participation factor."*fn2 In addition, each owner received twenty percent of the rents Innisbrook received from renting his individual unit. Innisbrook retained the remaining forty-seven percent "for its services as manager of the rental pool, the hotel operation and for the rental pool expenses "
As a result of the Internal Revenue Service disallowing Fine's claimed loss under section 280A of the Internal Revenue Code, a refund suit was filed by Fine to recover $1,193.00 in federal income taxes paid for the calendar year 1976. Fine contended that his unit was "rented at a fair rental" as required by 26 U.S.C. § 280A(d)(1)(B) for each of the 333 days that it participated in the pool and therefore that his twenty days of personal use did not exceed ten percent of the days the unit was rented. Alternatively he argued that his condominium was not a "dwelling unit" according to 26 U.S.C. § 280A(f)(1) (B). Cross-motions for summary judgment were filed by plaintiff Fine and the defendant United States. The district court denied Fine's motion but granted the motion of the United States. This appeal followed.
There is much discussion in the briefs as to whether the "Dedication Agreement" between the plaintiff and Innisbrook created an agency relationship or a leasehold. The district court held that the arrangement "must, for purposes of the present matter, be treated as a lease" but went on to state that the
characterization given to the agreement is of limited importance. Rather, the fundamental question to be resolved appears instead to be whether Congress intended that the arrangement at issue falls within the restrictions of 280A.
493 F. Supp. at 542. In our view, a determination of whether there was an agency relationship or a lease is not necessary in order to decide that section 280A bars the deduction at issue here. Section 280A(d)(1)(B) provides that the deduction is not allowable if a taxpayer's personal use exceeds "10 percent of the number of days during such year for which such unit is rented at a fair rental." The word "lease" does not appear in the statute. Moreover, we do not think that how many days the plaintiff's unit was ...