George S. Nalle, Iii, and Carole Nalle v. Commissioner of Internal Revenue, Charles A. Betts and Sylvia I. Betts v. Commissioner of Internal Revenue

JERRY E. SMITH, Circuit Judge:

George and Carole Nalle and Charles and Sylvia Betts (collectively, the “taxpayers”) appeal a decision of the Tax Court upholding the assessment of an income tax deficiency against them by the Commissioner of Internal Revenue (the “Commissioner”). Because we find the treasury regulation pursuant to which the Commissioner assessed the deficiency to be an invalid interpretation of the statute, we reverse.

I

George Nalle (“Nalle”) owns a fifty-percent interest in the Heritage Square Joint Venture, which, between 1982 and 1984, identified eight buildings in and around…