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Passive Losses

Fifth Circuit finds passive loss self-rental rule applies to S corporation lessors

Fifth Circuit finds passive loss self-rental rule applies to S corporation lessors

Williams v. Comm., (CA 5 2/2/2016) 117 AFTR 2d ¶ 2016-393 The Court of Appeals for the Fifth Circuit, affirming the Tax Court, has ruled that although the passive activity loss rules in Code Sec. 469 don’t explicitly say that they apply to S corporations, those rules, and specifically the passive loss self-rental rule which […]

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Ninth Circuit finds dental practice’s “management fees” weren’t deductible

Ninth Circuit finds dental practice’s “management fees” weren’t deductible

Elick v. Comm., (CA 9 1/6/2016) 116 AFTR 2d ¶ 2016-345 The Court of Appeals for the Ninth Circuit, affirming the Tax Court, has determined that a dental practice wasn’t entitled to deduct purported management fees paid to a related entity. The fees weren’t ordinary and necessary within the meaning of Code Sec. 162; there […]

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Lawyer’s reconstructed records were sufficient to show material participation

Lawyer’s reconstructed records were sufficient to show material participation

Leland, TC Memo 2015-240 The Tax Court has held that an attorney who owned a farm which was farmed by another party, but for which the taxpayer was responsible for maintaining the infrastructure, established his material participation in the farming activity for purposes of the passive activity rules, despite his not maintaining contemporaneous records of […]

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For PAL rules, realty exec’s work for entity counted as work for his own realty interests

For PAL rules, realty exec’s work for entity counted as work for his own realty interests

Stanley vs. U.S., (DC AK 11/12/2015) 116 AFTR 2d ¶ 2015-5419 A district court has ruled that, for purposes of the real estate professional’s exception to the passive activity loss (PAL) rules, a real estate management executive who also owned interests in the properties managed by his firm, may count his work for the entity […]

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Final Regs Clarify Loss Consequences from “Legging Out” of Integrated Hedging Transactions

Final Regs Clarify Loss Consequences from “Legging Out” of Integrated Hedging Transactions

T.D. 9736, 09/03/2015; Reg. § 1.988-5 IRS has issued final regs providing guidance regarding certain integrated transactions that involve a foreign currency denominated debt instrument and multiple associated hedging transactions. The regs apply to “leg-outs” under Reg. § 1.988-5(a)(6)(ii) occurring on or after Sept. 6, 2012. Background. A taxpayer that disposes of all or part of […]

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IRS Explains Who Is A Real Property Broker Under The Passive Activity Loss Rules

IRS Explains Who Is A Real Property Broker Under The Passive Activity Loss Rules

Chief Counsel Advice 201504010   In Chief Counsel Advice (CCA), IRS has concluded that a real estate agent who brings together buyers and sellers of real property can be a so-called “real estate professional” who is engaged in a real property brokerage trade or business as described in Code Sec. 469(c)(7)(C) of the passive activity […]

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Deductions from condo rental limited because of personal use

Deductions from condo rental limited because of personal use

Mark A. Van Malssen and Patricia D. Kiley, TC Memo 2013-236 The Tax Court has held that, because of the taxpayers’ personal use of rental real estate, a condo, deductions for rental real estate losses were limited by Code Sec. 280A for two tax years. It also resolved a dispute between the parties as to […]

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Airplane rental was passive activity where owner failed to show material participation

Airplane rental was passive activity where owner failed to show material participation

Williams, TC Memo 2014-158 The Tax Court has held that a part-time attorney’s rental of an airplane he purchased was a passive activity under the Code Sec. 469 passive activity loss (PAL) rules because he failed to show that he materially participated in the airplane activity. Click here for the Opinion of the Court. Background. […]

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Taxpayer wasn’t real estate professional; losses barred by passive activity rules

Taxpayer wasn’t real estate professional; losses barred by passive activity rules

Schumann, TC Memo 2014-138 The Tax Court has determined that an individual who was the president and majority shareholder of a number of businesses did not qualify as a real estate professional for either of two years at issue. The Court also determined that: a) the rental income that he received for the use of […]

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Passive activity losses from home converted to rental don’t offset excluded homesale gain

Passive activity losses from home converted to rental don’t offset excluded homesale gain

Chief Counsel Advice 201428008 In Chief Counsel Advice (CCA), IRS has determined that suspended passive activity losses under Code Sec. 469 from the passive rental of a home which was formerly used as the taxpayer’s principal residence, did not offset gain excluded under Code Sec. 121 on the property’s sale. Note: This is a taxpayer-friendly […]

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Court Case: Active-participation exception to farming syndicate not limited to individuals

Court Case: Active-participation exception to farming syndicate not limited to individuals

Burnett Ranches, Limited v. U.S., (CA 5 5/22/2014) 113 AFTR 2d ¶ 2014-848. The Court of Appeals for the Fifth Circuit, affirming the district court, has concluded that the Code Sec. 464(c)(2)(A) active-participation exception to a partnership being classified as a farming syndicate could be met by an individual who actively participated and owned a […]

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Tax Court – Mortgage-related dispute kept foreclosure from being passive activity disposition

Tax Court – Mortgage-related dispute kept foreclosure from being passive activity disposition

Herwig, TC Memo 2014-95. The Tax Court has ruled that where taxpayer’s limited liability company’s (LLC’s) passive activity consisted of the ownership of two rental properties, those properties were foreclosed upon by the lender and sold at foreclosure sales, but there were pending counterclaims between taxpayer and the lender with respect to deficiency judgments on […]

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District Court Case: Owner of LLC who co-guaranteed loan was 50% at risk & not subject to PAL limits

District Court Case: Owner of LLC who co-guaranteed loan was 50% at risk & not subject to PAL limits

Moreno, et al, (DC LA 5/19/2014) 113 AFTR 2d ¶ 2014-839. A district court has determined on summary judgment that a taxpayer was at risk with respect to the aircraft leasing activity of his wholly owned limited liability company (LLC), but was only at risk with respect to 50% of a loan taken out by […]

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Tax Court Case – Lawyer’s losses from side racehorse activity weren’t passive

Tax Court Case – Lawyer’s losses from side racehorse activity weren’t passive

In Stefan A. Tolin v. Commissioner, T.C. Memo. 2014-65, the Tax Court has held that a lawyer’s losses from a side thoroughbred horse breeding and racing activity (thoroughbred activity) were not passive activity losses and hence were currently deductible. The Court reached this result for the three years at issue because the lawyer showed that […]

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Disregarded entity’s passive investment activities constitute insurance business

Disregarded entity’s passive investment activities constitute insurance business

In a private letter ruling (PLR), PLR 201412001, IRS has concluded that the passive investment activities of a life insurance company’s subsidiary, which intends to make a check-the-box election to be disregarded as a separate entity, are properly treated as an insurance business. Accordingly, the subsidiary’s income and expenses will be included in computing the […]

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Tax Court: trust can qualify for real estate professional exception to PAL rules

Tax Court: trust can qualify for real estate professional exception to PAL rules

In Frank Aragona Trust, (2014) 142 TC No. 9142 TC No. 9, the Tax Court has determined that a trust that owned real estate properties and engaged in other real estate activities qualified for the Code Sec. 469(c)(7) exception for real estate professionals and thus wasn’t subject to the passive activity loss (PAL) limitations. In […]

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Salesman fails to prove he logged sufficient hours to be a real estate professional

Salesman fails to prove he logged sufficient hours to be a real estate professional

Editor’s Note:  This case is a good example of the sufficiency of the evidence needed to document the activity of real estate professionals to “prove up,” in essence, their entitlement to being deemed “real estate professionals.”  The Tax Court judge also opined on the evidence.  In Adeyemo v. Commissioner, TC Memo 2014-1, a taxpayer’s evidence […]

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Partnership finding prevents dad from claiming bulk of expenses of farming with son

Partnership finding prevents dad from claiming bulk of expenses of farming with son

The Court of Appeals for the Ninth Circuit, affirming the Tax Court, has concluded in an upublished opinion,  that the farming activity operated by a father and son was a partnership for Federal income tax purposes.  An unpublished opinion means that this disposition is not appropriate for publication and is not precedent except as provided […]

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Case Alert: Losses and credits for solar water heater systems disallowed by passive loss rules

Case Alert:  Losses and credits for solar water heater systems disallowed by passive loss rules

Editor’s Note:  in the past few years, the IRS has aggressively been pursuing taxpayers who claim that they are “actively” involved in a business, and as such, are allowed to offset their “active” income from “active” losses.  The type of industry can be real estate, and there are some hoops to jump through in order […]

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Meet Paul Raymond

Meet Paul Raymond

Mr. Raymond is a sought after speaker in tax controversy law by many attorney, accountant, and business groups and at the request of the Internal Revenue Service, has presented programs at the IRS Nationwide Tax Forum, attended by tax professionals throughout the United States.

Additionally, he continues to be an active member in the Section of Taxation, American Bar Association, where he was the Past Chair of the Employment Taxes Committee.

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