ILM 201427016 addresses how the “750-hour test” of Section 469 applies when you have multiple real estate activities. Under the passive loss rules of Section 469, rental real estate losses are normally passive; that means the losses are normally deductible only to the extent of other passive income, until the activity is sold.
A special rule allows real estate professionals to apply the normal passive loss rules, which are based on time spent in the activity, to rental real estate losses. To qualify as a real estate pro, you have to meet two tests:
- You have to spend more than 750 hours in the taxable year working in real estate trades or business in which you materially participate, and
- You have to spend more time in your real estate activity than in any other kind of activity (this test means that few people with non-real estate day jobs qualify as real estate pros).
In some cases the IRS has applied the 750 test to each activity — making it almost impossible for many taxpayers to qualify, absent an election to treat all rental real estate activities as a single activity under Reg. Sec. 1.469-9(g). The Tax Court issues a couple opinions that seemed to agree — opinions that I insisted were wrong.
Now the IRS seems to have come around. From the new IRS memo (my emphasis):
Therefore, whether a taxpayer is a qualifying taxpayer within the meaning of section 469(c)(7)(B) and Treas. Reg. § 1.469-9(b)(6) depends upon the rules for determining a taxpayer’s real property trades or businesses under Treas. Reg. § 1.469-9(d), and is not affected by an election under Treas. Reg. § 1.469-9(g). Instead, the election under Treas. Reg. § 1.469-9(g) is relevant only after the determination of whether the taxpayer is a qualifying taxpayer. However, some court opinions, while reaching the correct result, contain language which may be read to suggest that the election under Treas. Reg. § 1.469-9(g) affects the determination of whether a taxpayer is a qualifying taxpayer. See, for example, Jafarpour v. Comm’r, T.C. Memo. 2012-165, and Hassanipour v. Comm’r, T.C. Memo 2013-88. However, other court opinions recognize that the election under Treas. Reg. § 1.469-9(g) is not relevant to the determination of whether a taxpayer is a qualifying taxpayer. See, for example, Trask v. Comm’r, T.C. Memo 2010-78.
One hopes the IRS will no longer raise this false issue on examination.
Paul Neiffer, IRS Modifies Offshore Voluntary Disclosure Program (OVDP). “I have personally worked with clients that were involved in the old voluntary disclosure program and I can tell you it is not a pleasant experience.”
Jack Townsend, Rumors on the Workings of Streamlined Programs (Including Transitioning in OVDP). Reading this, it sounds more like a diabolical bureaucratic torture than a serious attempt to bring the non-compliant into the system.
Robert D. Flach, A RANDOM THOUGHT ABOUT THE NEW VOLUNTARY AFSC PROGRAM. A pithy lesson on the difference between qualifications and credentials.
Jason Dinesen, Life After DOMA: A History of Marriage in the Tax Code
Keith Fogg, When and Where to Make Your Arguments (Procedurally Taxing). In tax controversies, making the right argument does no good unless you make it at the right time.
TaxProf, The IRS Scandal, Day 424. The New York Times thinks the real scandal is that GOP appropriators won’t give the IRS more money to use against them.
Scott Hodge, The IRS Needs Tax Reform Not a Bigger Budget:
The relentless growth of credits and deduction in the code over the past 20 years had made the IRS a super-agency, engaged in policies ranging from delivering welfare benefits to subsidizing the manufacture of energy efficient refrigerators.
I would argue that were we starting from scratch, these are not the functions we would want a tax collection agency to perform. Tax reform would return the IRS to its core function—simply collecting revenues to fund the basic operations of government.
Amen. I’ve said much the same thing: “Every year Congress gives the IRS more to do. It has become a sprawling superagency administering programs from industrial policy (R&D credits, export subsidies, manufacturing subsidies) to historic preservation, housing policy to healthcare.”
If Congress stopped using the tax law as the Swiss Army Knife of public policy, the current IRS budget would be plenty.
Christopher Bergin, What’s Behind the Brain Drain at the IRS? (Tax Analsyts Blog):
So what’s going on? Is this an internal war at the tax agency, specifically in LB&I – a power struggle, if you will? Or is it the more predictable result of competent IRS leaders, who could easily make more money in the private sector, deciding to escape an agency that is being treated like a political piñata? Or is this the new IRS commissioner cleaning house? For me, the latter is the least likely.
Yeah, the new Commissioner is more into closing the blinds to the house so we don’t see the mess, rather than cleaning it up.
Renu Zaretsky, Congress Is Back with Much To Do and Consider (TaxVox). Today’s tax headline roundup covers this week’s Congressional agenda, inadequate retirement savings, and the EU’s efforts to crack down on multinationals.
Russ Fox, Pop Goes the Tax Fraud A rapper, a Canadian, and a football player walk
into before the bar…
The 70th anniversary of a red letter day for my Dad. July 5, 1944.
Tags: Christopher Bergin, Jack Townsend, Jason Dinesen, Keith Fogg., Paul Neiffer, real estate professionals, Renu Zaretsky, Robert D Flach, Russ Fox, Scott Hodge, Section 469, Swiss Army Knife, TaxGrrrl, TaxProf