Limitation On Loss Deductions

<div class="Section1"><br /> <p>Under the passive loss rules, aggregate losses from "passive" activities (see <a href="javascript:void(0)" class="accordion-cross-reference" id="8011">Q 8011</a>) may generally be deducted in a year only to the extent they do not exceed aggregate income from passive activities in that year; credits from passive activities may be taken against tax liability allocated only to passive activities.<a href="#_ftn1" name="_ftnref1">¹</a> (Aggregation is not permitted in the case of certain publicly traded partnerships. See below.) The rules generally apply to losses incurred in tax years beginning after 1986. The rules are intended to prevent losses from passive activities from offsetting salaries, interest, dividends, and income from "active" businesses. They apply to individuals, estates, trusts, closely held C corporations, and personal service corporations.</p><br /> <p>An <em>individual</em> can also deduct a limited amount of losses (and the deduction-equivalent of credits) arising from certain rental real estate activities against nonpassive income. See <a href="javascript:void(0)" class="accordion-cross-reference" id="8021">Q 8021</a>. A <em>closely held C corporation</em> (other than a personal service corporation) can deduct its passive activity losses against its net active income (other than its investment, or "portfolio," income) and its passive credits can be applied against its tax liability attributable to its net active income.<a href="#_ftn2" name="_ftnref2">²</a> Generally, a corporation is "closely" held if five or fewer individuals own more than 50 percent of the value of the stock.<a href="#_ftn3" name="_ftnref3">³</a> (For these purposes, certain organizations—including a qualified retirement plan under IRC Section 401(a) and a trust providing for the payment of supplemental unemployment compensation benefits under IRC Section 501(c)(17)—are considered an "individual.")<a href="#_ftn4" name="_ftnref4">⁴</a> A personal service corporation is a corporation the principal activity of which is the performance of personal services and the services of which are substantially performed by employee-owners.<a href="#_ftn5" name="_ftnref5">⁵</a></p><br /> <p>An exception to the passive loss restrictions is applied to certain casualty losses resulting from unusual events such as fire, storm, shipwreck, and earthquake. Losses from such casualties are generally not subject to the passive loss rules.<a href="#_ftn6" name="_ftnref6">⁶</a> Likewise, passive activity income does not include reimbursements for such losses if (1) the reimbursement is includable in gross income under Treasury Regulation Section 1.165-1(d)(2)(iii) as an amount the taxpayer had deducted in a prior taxable year, and (2) the deduction for the loss was not a passive activity deduction. In other words, both the losses and the reimbursement should be taken into account in the calculation of the partnership's gross income, not its passive activity gross income.<a href="#_ftn7" name="_ftnref7">⁷</a> The exception does not apply to losses that occur regularly in the conduct of the activity, such as theft losses from shoplifting in a retail store, or accident losses sustained in the operation of a rental car business.<a href="#_ftn8" name="_ftnref8">⁸</a></p><br /> <p>Special restrictions apply to <em>publicly traded partnerships</em> under the passive loss rules. The rules are applied separately to items attributable to a publicly traded partnership; thus, income, losses, and credits attributable to the partnership may not be aggregated with other income, losses, and credits of the taxpayer/partner for purposes of the passive loss rules.<a href="#_ftn9" name="_ftnref9">⁹</a> Net passive loss from a publicly traded partnership will be treated as passive, while net passive income from a publicly traded partnership is to be treated as investment income. See <a href="javascript:void(0)" class="accordion-cross-reference" id="8040">Q 8040</a>.<a href="#_ftn10" name="_ftnref10">¹⁰</a> Generally, net passive loss from a publicly traded partnership is carried forward until the partner has additional passive income from the partnership or the partner disposes of the partnership interest. See <a href="javascript:void(0)" class="accordion-cross-reference" id="8019">Q 8019</a>.Also, the $25,000 rental real estate exemption (see <a href="https://prod-taxfacts-alm.content.pugpig.com/faqs_page/limitation-on-loss-deductions/pugpig_index.html#faq-8021">Q 8021</a>) is available with respect to a publicly traded partnership only in connection with the low-income housing credit (see <a href="javascript:void(0)" class="accordion-cross-reference" id="7808">Q 7808</a>) and the rehabilitation investment credit. See <a href="https://prod-taxfacts-alm.content.pugpig.com/faqs_page/real-estate/pugpig_index.html#faq-7808">Q 7808</a>.Furthermore, a taxpayer will not be treated as having disposed of the taxpayer's entire interest in an activity of a publicly-traded partnership until disposition of the entire interest in the partnership. A publicly traded partnership is a partnership that is traded on an established securities market or is readily tradable on a secondary market (or the substantial equivalent thereof).<a href="#_ftn11" name="_ftnref11">¹¹</a> It would seem that if a publicly traded partnership is taxed as a closely held C corporation or any personal service corporation (see ), the partnership is not a taxpayer subject to the passive loss rules.<a href="#_ftn12" name="_ftnref12">¹²</a></p><br /> <p>Losses and credits disallowed under the passive loss rules may be carried over to offset passive income and the tax attributable to it in later years. See <a href="javascript:void(0)" class="accordion-cross-reference" id="8019">Q 8019</a>. Suspended losses and credits of an activity may also offset the income and tax of that activity when the activity ceases to be passive or there is a change in status of a closely held corporation or personal service corporation. See <a href="javascript:void(0)" class="accordion-cross-reference" id="8020">Q 8020</a>.As to losses allowed upon disposition of an interest in a passive activity, see <a href="https://prod-taxfacts-alm.content.pugpig.com/faqs_page/limitation-on-loss-deductions/pugpig_index.html#faq-8019">Q 8019</a>.</p><br /> <p>The passive loss rules apply to passive losses incurred in tax years beginning after 1986. They do not apply to any loss or credit carried over from a year beginning before 1987.<a href="#_ftn13" name="_ftnref13">¹³</a> A taxpayer may elect to treat investment interest (see <a href="javascript:void(0)" class="accordion-cross-reference" id="8040">Q 8040</a>) as a passive activity deduction if the interest was carried over from a year prior to 1987 and is attributable to property used in a passive activity after 1986.<a href="#_ftn14" name="_ftnref14">¹⁴</a> However, the interest deduction is not treated as being from a pre-enactment interest in a passive activity.<a href="#_ftn15" name="_ftnref15">¹⁵</a> This election had to be made by filing an amended return on or before the later of (1) the due date (taking into account any extensions of time to file obtained by the taxpayer) for filing the income tax return of the taxpayer for the taxpayer's first taxable year beginning after December 31, 1987, or (2) August 15, 1989.<a href="#_ftn16" name="_ftnref16">¹⁶</a></p><br /> </div><br /> <div class="refs"><br /> <hr align="left" size="1" width="33%"><br /> <p><a href="#_ftnref1" name="_ftn1">1</a>. IRC § 469.</p><br /> <p><a href="#_ftnref2" name="_ftn2">2</a>. IRC § 469(e)(2).</p><br /> <p><a href="#_ftnref3" name="_ftn3">3</a>. IRC § 469(j)(1).</p><br /> <p><a href="#_ftnref4" name="_ftn4">4</a>. IRC § 542(a)(2).</p><br /> <p><a href="#_ftnref5" name="_ftn5">5</a>. IRC § 469(j)(2).</p><br /> <p><a href="#_ftnref6" name="_ftn6">6</a>. Temp. Treas. Reg. § 1.469T(d)(2), Treas. Reg. § 1.469(d)(2)(xi).</p><br /> <p><a href="#_ftnref7" name="_ftn7">7</a>. Temp. Treas. Reg. § 1.469T(c)(7), Treas. Reg. § 1.469(c)(7)(vi).</p><br /> <p><a href="#_ftnref8" name="_ftn8">8</a>. TD 8290, 1990-1 CB 109.</p><br /> <p><a href="#_ftnref9" name="_ftn9">9</a>. IRC § 469(k)(1).</p><br /> <p><a href="#_ftnref10" name="_ftn10">10</a>. Notice 88-75, 1988 CB 386.</p><br /> <p><a href="#_ftnref11" name="_ftn11">11</a>. IRC § 469(k).</p><br /> <p><a href="#_ftnref12" name="_ftn12">12</a>. See IRC § 469(a).</p><br /> <p><a href="#_ftnref13" name="_ftn13">13</a>. TRA '86 § 501(c)(2).</p><br /> <p><a href="#_ftnref14" name="_ftn14">14</a>. TAMRA '88 § 1005(c)(11).</p><br /> <p><a href="#_ftnref15" name="_ftn15">15</a>. Notice 89-36, 1989-1 CB 677.</p><br /> <p><a href="#_ftnref16" name="_ftn16">16</a>. TAMRA '88 § 1005(c)(11; Notice 89-36, 1989-1 CB 6771.</p><br /> </div>

<div class="Section1"><br /> <p>The "at risk" rules apply to each of the following activities when engaged in by an individual (including partners and S corporation shareholders) as a trade or business or for the production of income:</p><br /> <p>…holding, producing, or distributing motion picture films or video tapes;</p><br /> <p>…farming (including raising, shearing, feeding, caring for, training, or management of animals);</p><br /> <p>…leasing of depreciable personal property (and certain other "IRC Section 1245" property, which includes both real and personal property and certain other tangible property that is being, or has been depreciated or amortized<a href="#_ftn1" name="_ftnref1">¹</a>);</p><br /> <p>…exploring for, or exploiting, oil and gas reserves (see <a class="accordion-cross-reference" href="https://www.thinkadvisor.com/tax-facts/2024/03/13/7857-how-do-individuals-invest-in-oil-and-natural-gas/">Q 7857</a> to <a class="accordion-cross-reference" href="https://www.thinkadvisor.com/tax-facts/2024/03/13/7887-what-items-of-tax-preference-for-purposes-of-the-alternative-minimum-tax-are-unique-to-an-oil-and-gas-program/">Q 7887</a>);</p><br /> <p>…exploring, or exploiting, geothermal deposits;</p><br /> <p>…holding real property (see <a class="accordion-cross-reference" href="https://www.thinkadvisor.com/tax-facts/2024/03/13/7792-does-the-at-risk-limitation-on-losses-apply-to-an-investor-in-real-estate-if-so-what-effect-will-it-have/">Q 7792</a> for effective date and transitional relief rules);</p><br /> <p>…all other activities engaged in by a taxpayer in carrying on a trade or business or for the production of income.<a href="#_ftn2" name="_ftnref2">²</a></p><br /> <p>Apparently, if a publicly traded partnership is taxed as a corporation (see ), the partnership is not subject to the at risk rules unless it is closely-held (generally, more than 50 percent control by five or fewer individuals).<a href="#_ftn3" name="_ftnref3">³</a> For these purposes, a qualified retirement plan described in IRC Section 401(a) as well as a plan providing for the payment of unemployment compensation benefits under IRC Section 501(c)(17) are considered individuals.<a href="#_ftn4" name="_ftnref4">⁴</a></p><br /> </div><br /> <div class="refs"><br /> <hr align="left" size="1" width="33%"><br /> <p><a href="#_ftnref1" name="_ftn1">1</a>. IRS Publication 925, Passive Activity and At-Risk Rules.</p><br /> <p><a href="#_ftnref2" name="_ftn2">2</a>. IRC §§ 465(c), 464(e).</p><br /> <p><a href="#_ftnref3" name="_ftn3">3</a>. See IRC § 465(a).</p><br /> <p><a href="#_ftnref4" name="_ftn4">4</a>. IRC § 542(a)(2).</p><br /> </div>

<div class="Section1"><br /> <br /> A rental real estate activity of a taxpayer is not automatically considered a rental activity (see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="8011">8011</a>) subject to the passive loss rules for a year, but only if during the year (1) more than one-half of the personal services performed by the taxpayer in trades or businesses during the year is in real property trades or businesses (see below) in which the taxpayer materially participates (see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="8011">8011</a>), and (2) the taxpayer performs more than 750 hours of service during the year in such real property trades or businesses (making the taxpayer a qualifying taxpayer). For purposes of (2), personal services performed as an employee are not treated as performed in a real property trade or business unless the employee is a 5 percent owner. In the case of a closely held C corporation, the requirements are considered met if more than 50 percent of the gross receipts of the corporation are derived from real property trades or businesses in which the corporation materially participates. With respect to a joint return, these requirements are met only if either spouse separately satisfies the requirements.<a href="#_ftn1" name="_ftnref1">¹</a> Work performed by the taxpayer&rsquo;s spouse in a trade or business is treated as work performed by the taxpayer regardless of whether the spouses file a joint return.<a href="#_ftn2" name="_ftnref2">²</a> Personal services do not include work performed in the individual&rsquo;s capacity as an investor.<a href="#_ftn3" name="_ftnref3">³</a><br /> <br /> Any interest in rental real estate, including real property held for the production of income under IRC Section 212, is considered a trade or business for purposes of the rental real estate with material participation exception.<a href="#_ftn4" name="_ftnref4">⁴</a> However, any rental real estate that the taxpayer grouped with a trade or business activity because the rental real estate was insubstantial in relation to the trade or business activity, or because the ownership interests in each activity were held in the same proportion (see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="8016">8016</a>), is not an interest in rental real estate for purposes of the rental real estate with material participation exception.<a href="#_ftn5" name="_ftnref5">⁵</a> A real property trade or business is any real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing, or brokerage trade or business.<a href="#_ftn6" name="_ftnref6">⁶</a> A facts and circumstances approach is used in determining the taxpayer&rsquo;s real property trade or business and, once determined, may not be changed unless the original determination was clearly inappropriate or a material change in circumstances has occurred that makes the earlier determination clearly inappropriate.<a href="#_ftn7" name="_ftnref7">⁷</a> Each interest of a qualifying taxpayer in rental real estate will be treated as a separate rental real estate activity, unless an election is made to treat all rental real estate as a single activity (see below). A qualifying taxpayer may not group a rental real estate activity with any other activity.<a href="#_ftn8" name="_ftnref8">⁸</a><br /> <br /> A qualifying taxpayer may elect to treat all interests in rental real estate as a single rental real estate activity and that election is binding for the taxable year in which it is made and for all future years in which the taxpayer is a qualifying taxpayer unless the taxpayer revokes the election because of a material change in circumstances. If a taxpayer makes this election and at least one rental real estate interest is held by the taxpayer as a limited partnership interest, the combined rental real estate activity will be treated as a limited partnership interest for the purpose of determining material participation (see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="8011">8011</a>) unless the taxpayer&rsquo;s share of gross rental income from all limited partnership interests in rental real estate is less than 10 percent of his or her share of gross rental income from all interests in rental real estate for the year.<a href="#_ftn9" name="_ftnref9">⁹</a><br /> <br /> <hr><br /> <br /> <strong>Planning Point:</strong> The election may be made in any year in which the taxpayer is a qualifying taxpayer, and the failure to make the election in one year does not preclude the taxpayer from making the election in a subsequent year. <a href="#_ftn10" name="_ftnref10">¹⁰</a><br /> <br /> <hr><br /> <br /> The fact that an election is less advantageous to the taxpayer in a particular taxable year is not, of itself, a material change in the taxpayer&rsquo;s facts and circumstances. Similarly, a break in the taxpayer&rsquo;s status as a qualifying taxpayer is not, of itself, a material change in the taxpayer&rsquo;s facts and circumstances.<a href="#_ftn11" name="_ftnref11">¹¹</a><br /> <br /> In the absence of an election by a qualifying taxpayer, interests in rental real estate held by a partnership or S corporation pass-through entity are treated as one or more activities as grouped by the pass-through entity. See Q <a href="javascript:void(0)" class="accordion-cross-reference" id="8016">8016</a>.However, if the election is not made and the qualifying taxpayer holds at least a 50 percent interest in the capital, profits, or losses, of a pass-through entity, each interest in rental real estate held by the pass-through entity is treated as a separate activity of the qualifying taxpayer, regardless of the way the pass-through entity groups activities. If one pass-through entity owns at least a 50 percent interest in the capital, profits, or losses of another pass-through entity, each interest in rental real estate held by the lower-tier entity will be a separate interest in rental real estate of the upper-tier entity regardless of the way the lower-tier entity groups activities.<a href="#_ftn12" name="_ftnref12">¹²</a><br /> <br /> The $25,000 rental real estate exemption of IRC Section 469(i) (discussed above) also applies to the passive losses and credits from rental real estate activities (including prior-year disallowed passive activity losses and credits from rental real estate activities in which the taxpayer materially participates) of a qualifying taxpayer. The $25,000 rental real estate exemption is determined after application of the rental real estate with material participation rules. However, losses allowable under the rental real estate with material participation rules are not considered in determining adjusted gross income for purposes of phase-out of the $25,000 rental real estate exemption.<a href="#_ftn13" name="_ftnref13">¹³</a><br /> <p style="padding-left: 40px"><em>Example:</em> Al owns building X and building Y, both interests in rental real estate. In 2024, Al is a qualifying taxpayer under the rental real estate with material participation rules. Al does not elect to treat X and Y as one activity under the rental real estate with material participation rules. As a result, X and Y are treated as separate activities. Al materially participates in X, which has $100,000 of passive losses disallowed from prior years and produces $20,000 of losses in 2024. Al does not materially participate in Y, which produces $40,000 of income in 2024. Al also has $50,000 of income from other non-passive sources in 2024. Al otherwise meets the requirements of the $25,000 rental real estate exemption.</p><br /> <p style="padding-left: 40px">Because X is not a passive activity in 2024, the $20,000 of losses produced by X in 2024 are non-passive losses that may be used by Al to offset part of the $50,000 of non-passive income. Accordingly, Al is left with $30,000 ($50,000 &ndash; $20,000) of non-passive income. In addition, Al may use the prior year disallowed passive losses of X to offset any income from X and passive income from other sources. Therefore, Al may offset the $40,000 of passive income from Y with $40,000 of passive losses from X.</p><br /> <p style="padding-left: 40px">Because Al has $60,000 ($100,000 &ndash; $40,000) of passive losses remaining from X and meets all of the requirements of the $25,000 rental real estate exemption, Al may offset up to $25,000 of non-passive income with passive losses from X under the exemption. As a result, Al has $5,000 ($30,000 &ndash; $25,000) of non-passive income remaining and disallowed passive losses from X of $35,000 ($60,000 &ndash; $25,000) in 2024.<a href="#_ftn14" name="_ftnref14">¹⁴</a></p><br /> A taxpayer may have regrouped his activities without regard to the manner in which they were grouped in the preceding taxable years for the first taxable year beginning after December 31, 1993, to the extent necessary or appropriate to take advantage of the rental real estate with material participation exception.<a href="#_ftn15" name="_ftnref15">¹⁵</a> See also Q <a href="javascript:void(0)" class="accordion-cross-reference" id="8016">8016</a>.<br /> <br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>. IRC &sect; 469(c)(7).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>. Treas. Reg. &sect; 1.469-9(c)(4).<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>. Treas. Reg. &sect; 1.469-9(b)(4).<br /> <br /> <a href="#_ftnref4" name="_ftn4">4</a>. Treas. Reg. &sect; 1.469-9(b)(1).<br /> <br /> <a href="#_ftnref5" name="_ftn5">5</a>. Treas. Reg. &sect; 1.469-9(b)(3).<br /> <br /> <a href="#_ftnref6" name="_ftn6">6</a>. IRC &sect; 469(c)(7)(C).<br /> <br /> <a href="#_ftnref7" name="_ftn7">7</a>. Treas. Reg. &sect; 1.469-9(d).<br /> <br /> <a href="#_ftnref8" name="_ftn8">8</a>. Treas. Reg. &sect; 1.469-9(e)(3).<br /> <br /> <a href="#_ftnref9" name="_ftn9">9</a>. Treas. Reg. &sect; 1.469-9(f).<br /> <br /> <a href="#_ftnref10" name="_ftn10">10</a>. Treas. Reg. &sect; 1.469-9(g)(1)<br /> <br /> <a href="#_ftnref11" name="_ftn11">11</a>. Treas. Reg. &sect; 1.469-9(g)(2).<br /> <br /> <a href="#_ftnref12" name="_ftn12">12</a>. Treas. Reg. &sect; 1.469-9(h).<br /> <br /> <a href="#_ftnref13" name="_ftn13">13</a>. Treas. Reg. &sect; 1.469-9(j).<br /> <br /> <a href="#_ftnref14" name="_ftn14">14</a>. Treas. Reg. &sect; 1.469-9(j)(2).<br /> <br /> <a href="#_ftnref15" name="_ftn15">15</a>. Treas. Reg. &sect; 1.469-11(b)(3)(iii).<br /> <br /> </div></div><br />

<div class="Section1">If an activity ceases to be passive (e.g., because the taxpayer begins to participate materially), its unused losses (or credits) from prior years continue to be passive, but may be used against the income (and tax liability) of that activity. If there is a change in the status of a closely held C corporation or personal service corporation, its suspended losses from prior years will continue to be treated as if the status of the corporation had not changed.<a href="#_ftn1" name="_ftnref1">¹</a><br /> <br /> <hr><br /> <br /> <strong>Planning Point:</strong> As a general rule, an individual will be treated as materially participating in an activity for the taxable year if, and only if, he or she participates in the activity for more than 500 hours during the year, or if his or her participation satisfies one of six other requirements in Temporary Treasury Regulation Section 1.469-5T(a). For instance, the individual&rsquo;s participation will be deemed material if, based on all of the facts and circumstances, the individual participates in the activity on a regular, continuous, and substantial basis during such year.<a href="#_ftn2" name="_ftnref2">²</a><br /> <br /> <hr><br /> <br /> For an explanation of losses allowed upon disposition of an interest in a former passive activity, see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="8019">8019</a>.<br /> <br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>. IRC &sect; 469(f).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>. Temp. Treas. Reg. &sect; 1.469-5T(a)(7).<br /> <br /> </div></div><br />

<div class="Section1"><br /> <br /> First, while few investors in real estate syndications will qualify for this exception, it should be noted that certain rental real estate activities may not be subject to the passive loss rules. For tax years beginning after 1993, a rental real estate activity of a taxpayer is not automatically considered a rental activity subject to the passive loss rules for a year, but only if during the year (1) more than one-half of the personal services performed by the taxpayer in trades or businesses during the year is in real property trades or businesses in which the taxpayer materially participates, and (2) the taxpayer performs more than 750 hours of service during the year in the real property trades or businesses. See Q <a href="javascript:void(0)" class="accordion-cross-reference" id="8022">8022</a>.<br /> <br /> An <em>individual</em> can deduct losses (and the deduction-equivalent of credits) attributable to all rental real estate activities subject to the passive loss rules in which he or she has &ldquo;actively participated&rdquo; (and has at least a 10 percent interest in the activity at all times during the year) against as much as $25,000 of nonpassive income.<a href="#_ftn1" name="_ftnref1">¹</a> The $25,000 amount is reduced by 50 cents for each dollar by which the individual&rsquo;s adjusted gross income exceeds $100,000.<a href="#_ftn2" name="_ftnref2">²</a> <em>Adjusted gross income</em>, for this purpose, does not include Social Security or railroad retirement benefits, is not reduced by contributions to an IRA, any passive loss or loss from rental real estate with material participation, deductions for student loan interest, deductions for qualified tuition and related expenses (see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="8054">8054</a>), or deductions for production of income, and is not reduced by the exclusions for savings bonds interest used to pay higher education expenses (see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="7686">7686</a>) or certain adoption assistance programs.<a href="#_ftn3" name="_ftnref3">³</a><br /> <br /> The rules above are applied differently to deductions of amounts equivalent to the low income housing credit (see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="7801">7801</a>) or the rehabilitation credit (see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="7808">7808</a>). First, the requirement that the individual own at least a 10 percent interest in the activity and &ldquo;actively participate&rdquo; does not apply to these deductions.<a href="#_ftn4" name="_ftnref4">⁴</a> Furthermore, with respect to the rehabilitation credit, the $25,000 amount does not begin to phase out until the individual has adjusted gross income of $200,000 instead of $100,000.<a href="#_ftn5" name="_ftnref5">⁵</a> With respect to property placed in service after 1989, there is no phase-out of the $25,000 rental real estate exemption with respect to the low-income housing tax credit.<a href="#_ftn6" name="_ftnref6">⁶</a> For property placed in service before 1990, the $25,000 exemption amount for rental real estate with respect to the low-income housing tax credit did not begin to phase out until a taxpayer had income in excess of $200,000.<br /> <br /> The $25,000 amount is not available to married individuals who file separately but who did not live apart at all times during the year. For married individuals who file separately and did live apart at all times during the year, the $25,000, $100,000, and $200,000 amounts are cut in half (i.e., $12,500, $50,000, and $100,000).<a href="#_ftn7" name="_ftnref7">⁷</a> For up to two years after a decedent&rsquo;s death, an <em>estate</em> may offset up to $25,000 (subject to the phase-out rule) of nonpassive income with passive losses and credits from a rental real estate activity in which the decedent actively participated before his or her death. The estate&rsquo;s $25,000 amount is reduced by the rental real estate exemption amount that would be allowable to the surviving spouse calculated as if the spouse were not subject to the phase-out rule.<a href="#_ftn8" name="_ftnref8">⁸</a><br /> <br /> The $25,000 rental real estate exemption is available with respect to a publicly traded partnership subject to the passive loss rule (see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="8010">8010</a>) only to the extent that the low-income housing credit and the rehabilitation credit exceed the regular tax liability attributable to income from the partnership.<a href="#_ftn9" name="_ftnref9">⁹</a><br /> <br /> The term &ldquo;publicly traded partnership&rdquo; means any partnership if (a) interests in such partnership are traded on an established securities market, or (b) interests in such partnership are readily tradable on a secondary market (or the substantial equivalent thereof).<a href="#_ftn10" name="_ftnref10">¹⁰</a><br /> <br /> Before passive losses from a rental real estate activity can be used to offset nonpassive income, they must first be netted against other real estate activities in which the taxpayer actively participates, then against other passive income. Any remaining losses may be applied against up to $25,000 of nonpassive income. If losses are otherwise deductible under the $25,000 rule, but the taxpayer cannot deduct all or part of them in the current year because passive losses exceed the taxpayer&rsquo;s nonpassive income, the excess losses are treated as a net operating loss arising in that year which can be carried back and forward in accordance with the net operating loss rules.<a href="#_ftn11" name="_ftnref11">¹¹</a> With regard to the interaction of the passive loss rule with other limitations on the use of credits or the deductibility of losses, see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="8017">8017</a> and Q <a href="javascript:void(0)" class="accordion-cross-reference" id="8018">8018</a>.<br /> <br /> An individual must <em>actively participate</em> in the rental real estate activity and have at least a 10 percent interest in the activity at all times during the year in order to take advantage of the $25,000 exemption amount (unless the individual is claiming the deduction equivalent of the low income housing or rehabilitation credit, as noted above). Except as provided in regulations, a limited partner is not treated as actively participating with respect to a limited partnership interest.<a href="#_ftn12" name="_ftnref12">¹²</a> A taxpayer can meet the active participation requirement by making management decisions, such as &ldquo;approving new tenants, deciding on rental terms, approving capital or repair expenditures, and other similar decisions,&rdquo; and arranging for others to provide services such as repairs. Regular, continuous, and substantial involvement in operations is not required. In determining whether a person actively participates, the participation of a spouse is considered. In determining what an activity is, it may be necessary to consider the degree of business and functional integration among different properties or units of property.<a href="#_ftn13" name="_ftnref13">¹³</a> For a definition of &ldquo;active participation,&rdquo; see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="8020">8020</a>.<br /> <br /> The rule allowing up to $25,000 of rental real estate losses and credit-equivalents to offset nonpassive income does not apply to losses and credits carried over from a year in which the taxpayer did not actively participate. Credits and losses that were disallowed in a prior year, because they exceeded the rental real estate exemption amount in that year, are only deductible under the $25,000 rule if the taxpayer actively participates in the year to which the losses and credits are carried over.<a href="#_ftn14" name="_ftnref14">¹⁴</a><br /> <br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>. IRC &sect; 469(i).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>. IRC &sect; 469(i)(3)(A).<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>. IRC &sect; 469(i)(3)(E).<br /> <br /> <a href="#_ftnref4" name="_ftn4">4</a>. IRC &sect; 469(i)(6)(B).<br /> <br /> <a href="#_ftnref5" name="_ftn5">5</a>. IRC &sect; 469(i)(3)(B).<br /> <br /> <a href="#_ftnref6" name="_ftn6">6</a>. IRC &sect; 469(i)(3)(C).<br /> <br /> <a href="#_ftnref7" name="_ftn7">7</a>. IRC &sect; 469(i)(5).<br /> <br /> <a href="#_ftnref8" name="_ftn8">8</a>. IRC &sect; 469(i)(4).<br /> <br /> <a href="#_ftnref9" name="_ftn9">9</a>. IRC &sect; 469(k).<br /> <br /> <a href="#_ftnref10" name="_ftn10">10</a>. IRC &sect; 469(k)(2).<br /> <br /> <a href="#_ftnref11" name="_ftn11">11</a>. Sen. Rep. 99-313, 1986-3 CB (vol. 3) 713, 722, 736-37.<br /> <br /> <a href="#_ftnref12" name="_ftn12">12</a>. IRC &sect; 469(i)(6).<br /> <br /> <a href="#_ftnref13" name="_ftn13">13</a>. Sen. Rep. 99-313, 1986-3 CB (vol. 3) 713, 737-38.<br /> <br /> <a href="#_ftnref14" name="_ftn14">14</a>. IRC &sect; 469(i)(1).<br /> <br /> </div></div><br />

<div class="Section1"><br /> <br /> A passive activity is any activity (see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="8016">8016</a> for rules defining an activity) that involves the conduct of a trade or business in which the taxpayer does not &ldquo;materially participate.&rdquo;<a href="#_ftn1" name="_ftnref1">¹</a> The IRC indicates that regulations may define the term &ldquo;trade or business&rdquo; to include activities in connection with a trade or business or activities that are engaged in for the production of income under IRC Section 212. The Service has studied this matter.<a href="#_ftn2" name="_ftnref2">²</a> Regulations provide that the Service will treat real property held for the production of income under IRC Section 212 as a trade or business for purposes of the rental real estate with material participation exception (see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="8021">8021</a>).<br /> <br /> The term &ldquo;passive activity&rdquo; does not include a working interest in an oil or gas property that the taxpayer holds directly or through an entity that does not limit the liability of the taxpayer with respect to the interest (see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="7862">7862</a>).<a href="#_ftn3" name="_ftnref3">³</a> It also does not include the activity of trading personal property (e.g., stocks or bonds) on behalf of the owners of interests in the activity.<a href="#_ftn4" name="_ftnref4">⁴</a><br /> <br /> <em>Example:</em> ABC partnership is a trader of stocks, bonds, and other securities (within the meaning of IRC Section 1236(c)). The capital employed by the partnership in the trading activity consists of amounts contributed by the partners in exchange for their partnership interests, and funds borrowed by the partnership. The partnership derives gross income from the activity in the form of interest, dividends, and capital gains. Under these facts, the partnership is treated as conducting an activity of trading personal property for the account of its partners. Accordingly, the activity is not a passive activity.<a href="#_ftn5" name="_ftnref5">⁵</a><br /> <br /> Whether an activity is passive or not with regard to a partner or an S corporation shareholder is determined at the level of the partner or shareholder, not at the level of the entity. Such determination is made with regard to the entity&rsquo;s taxable year (not the partner&rsquo;s or shareholder&rsquo;s taxable year).<a href="#_ftn6" name="_ftnref6">⁶</a> However, if a publicly traded partnership is taxed as a corporation (see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="7728">7728</a>), the partnership is the taxpayer, and apparently the partnership is not subject to the passive loss rule.<a href="#_ftn7" name="_ftnref7">⁷</a> In the case of a limited partnership interest in an electing large partnership (note that the rules governing electing large partnerships have been repealed), all passive loss limitation activities of the partnership are treated as a single passive activity (see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="7733">7733</a>).<br /> <br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>. IRC &sect; 469(c).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>. TD 8175(II)(A), 1988-1 CB 191.<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>. IRC &sect; 469(c)(3).<br /> <br /> <a href="#_ftnref4" name="_ftn4">4</a>. Temp. Treas. Reg. &sect; 1.469-1T(e)(6).<br /> <br /> <a href="#_ftnref5" name="_ftn5">5</a>. Temp. Reg. &sect; 1.469-1T(e)(6)(iii).<br /> <br /> <a href="#_ftnref6" name="_ftn6">6</a>. Temp. Treas. Reg. &sect;&sect;1.469T(e)(1), 1.469-3T(b)(3).<br /> <br /> <a href="#_ftnref7" name="_ftn7">7</a>. See IRC &sect; 469(a).<br /> <br /> </div></div><br />

<div class="Section1"><br /> <br /> The determination of whether a loss is disallowed under the passive loss rules is made <em>after</em> the application of (1) the limitations on the deductibility of losses in excess of basis with respect to investment in a partnership (see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="7750">7750</a>) or S corporation (see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="805">805</a>), and (2) the &ldquo;at risk&rdquo; rule (see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="8003">8003</a> to Q <a href="javascript:void(0)" class="accordion-cross-reference" id="8009">8009</a>). A passive loss that would not be allowed because of the basis limitations or the at risk rules is suspended and carried forward under the basis and/or at risk provisions, not the passive loss rules. The amount becomes subject to the passive loss rules in subsequent years when it would be otherwise allowable under both the basis and at risk limitations.<a href="#_ftn1" name="_ftnref1">¹</a><br /> <br /> According to the Senate Finance Committee Report, TRA &rsquo;86, amounts at risk are reduced even if deductions that would be allowed under the at risk rules are suspended under the passive loss rules. Similarly, basis is reduced if the deduction would be allowed under the at risk rules but is suspended under the passive loss rules. When a taxpayer&rsquo;s amount at risk or basis has been reduced by a deduction not allowed under the passive loss rules, the amount at risk or basis is not reduced again when the deduction becomes allowable under the passive loss rules.<a href="#_ftn2" name="_ftnref2">²</a><br /> <br /> Under the regulations, passive activity deductions do not include: (1) a deduction for an item of expense (other than interest) that is clearly and directly allocable to portfolio income; (2) a deduction allowed under IRC Sections 243, 244, or 245 with respect to any dividend that is not included in passive activity gross income; (3) interest expense (other than expense allocated to a passive activity expenditure and which is neither qualified residence interest nor capitalized); (4) a deduction for a loss from the disposition of property of a type that produces portfolio income; (5) a deduction that is treated as a deduction that is not a passive activity deduction; (6) a deduction for any state, local, or foreign income, war profits, or excess profits tax; (7) a miscellaneous itemized deduction that is subject to partial or total disallowance; or (8) a deduction allowed for a charitable contribution.<a href="#_ftn3" name="_ftnref3">³</a><br /> <br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>. Temp. Treas. Reg. &sect; 1.469T(d).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>. Sen. Rep. 99-313, 1986-3 CB (vol. 3) 713, 723.<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>. Temp. Treas. Reg. &sect; 1.469T(d)(2).<br /> <br /> </div></div><br />

<div class="Section1"><br /> <br /> In general, a taxpayer is considered to <em>materially participate</em> in an activity if he is involved in the operations of the activity on a regular, continuous, and substantial basis.<a href="#_ftn1" name="_ftnref1">¹</a> The material participation requirement is met by an individual if he satisfies any one of the following five tests: (1) he does substantially all of the work required by the activity, (2) he participates in the activity for more than 500 hours during the year, (3) he participates in the activity for more than 100 hours during the year and meets certain other requirements, (4) he has materially participated in the activity in five out of the 10 preceding years (determined without regard to this test), or (5) he has materially participated in the activity, which involves the performance of personal services, in any three preceding years. An individual who is a limited partner is treated as materially participating only if he also owns a general partnership interest, or if he can meet tests (2), (4), or (5).<a href="#_ftn2" name="_ftnref2">²</a><br /> <br /> In determining whether an individual materially participates, the participation of the individual&rsquo;s spouse is considered.<a href="#_ftn3" name="_ftnref3">³</a> Work done in the individual&rsquo;s capacity as an investor is not treated as participation unless the individual is involved in the day-to-day management or operations of the activity. The extent to which an individual participates may be shown by any reasonable means.<a href="#_ftn4" name="_ftnref4">⁴</a><br /> <br /> A closely held C corporation or a personal service corporation is considered to materially participate in an activity if (a) one or more stockholders who owns more than 50 percent (by value) of the outstanding stock of the corporation materially participates <em>or</em> (b) if the C corporation (other than a personal service corporation) has an active full-time manager throughout the year, at least three full-time nonowner employees whose services are directly related to the business of the corporation, and certain deductions of the business exceed 15 percent of the income for the year.<a href="#_ftn5" name="_ftnref5">⁵</a><br /> <br /> Whether a trust materially participates in an activity is determined by reference to the persons who conduct the business activity on the trust&rsquo;s behalf (such as its fiduciaries, employees, and agents), not just whether the trustee materially participates in the activity.<a href="#_ftn6" name="_ftnref6">⁶</a> See Q <a href="javascript:void(0)" class="accordion-cross-reference" id="8014">8014</a> for the special rule for significant participation passive activities.<br /> <br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>. IRC &sect; 469(h)(1).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>. Temp. Treas. Reg. &sect; 1.469-5T.<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>. IRC &sect; 469(h)(5).<br /> <br /> <a href="#_ftnref4" name="_ftn4">4</a>. Temp. Treas. Reg. &sect; 1.469-5T(f).<br /> <br /> <a href="#_ftnref5" name="_ftn5">5</a>. IRC &sect; 469(h)(4).<br /> <br /> <a href="#_ftnref6" name="_ftn6">6</a>. <em>Carter Trust v. Comm.</em>, 256 F. Supp. 2d 536, 2003-1 USTC &para; 50,418 (N.D. Tex. 2003).<br /> <br /> </div></div><br />

<div class="Section1">Except as provided below, a passive activity includes any rental activity, without regard to whether the taxpayer materially participates in the activity.<a href="#_ftn1" name="_ftnref1">¹</a> A rental activity is any activity where payments are principally for the use of tangible property.<a href="#_ftn2" name="_ftnref2">²</a> However, there are a number of exceptions to this rule. An activity is not treated as a rental activity if: (1) the average rental period is less than eight days, (2) the average rental period is less than 31 days and substantial personal services are provided, (3) the rental of the property is incidental to the receipt of personal services or to a nonrental activity, (4) the taxpayer makes the property available on a nonexclusive basis during regular business hours, (5) the taxpayer rents property to a passthrough entity engaged in a nonrental activity, in his capacity as an owner of that entity, or (6) the personal use of a residence that is also rented out exceeds the greater of 14 days or 10 percent of the rental days (see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="7796">7796</a>).<a href="#_ftn3" name="_ftnref3">³</a><br /> <br /> <hr><br /> <br /> <strong>Planning Point:</strong> For purposes of the preceding paragraph, personal services include only services performed by individuals, and do not include services such as services to comply with local permit laws or performed in connection with the improvement or repair of the property. In determining whether personal services provided in connection with making property available for use by customers are significant, all of the relevant facts and circumstances are taken into account. Relevant facts and circumstances include the frequency with which such services are provided, the type and amount of labor required to perform such services, and the value of such services relative to the amount charged for the use of the property.<a href="#_ftn4" name="_ftnref4">⁴</a><br /> <br /> <hr><br /> <br /> See Q <a href="javascript:void(0)" class="accordion-cross-reference" id="8021">8021</a> for special rules for rental real estate.<br /> <br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>. IRC &sect; 469(c)(2).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>. IRC &sect; 469(j)(8).<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>. Temp. Treas. Reg. &sect; 1.469-1T(e)(3); IRC &sect; 469(j)(10).<br /> <br /> <a href="#_ftnref4" name="_ftn4">4</a>. Temp. Treas. Reg. &sect; 1.469-1T(e)(3)(iv).<br /> <br /> </div></div><br />

<div class="Section1"><br /> <br /> Interest income and deductions in connection with loans between a taxpayer and a &ldquo;passthrough entity&rdquo; (a partnership or S corporation) in which the taxpayer owns a direct or indirect interest may be allocated under the following &ldquo;self-charged interest rules&rdquo; rather than the rules discussed in Q <a href="javascript:void(0)" class="accordion-cross-reference" id="8011">8011</a> to Q <a href="javascript:void(0)" class="accordion-cross-reference" id="8014">8014</a>.An indirect interest means an interest held through one or more passthrough entities.<a href="#_ftn1" name="_ftnref1">¹</a><br /> <br /> <em>Taxpayer loans to the entity</em>. The self-charged interest rules apply for a taxable year if: (1) the borrowing entity has deductions for its taxable year for interest charged by persons who own direct or indirect interests in the borrowing entity at any time during the entity&rsquo;s taxable year; (2) the taxpayer owns a direct or indirect interest in the borrowing entity at any time during the entity&rsquo;s taxable year and the taxpayer has gross income for the taxable year from interest charged to the borrowing entity by either the taxpayer or a passthrough entity through which the taxpayer holds an interest in the borrowing entity; and (3) the taxpayer&rsquo;s share of the borrowing entity&rsquo;s self-charged interest deductions includes passive activity deductions.<a href="#_ftn2" name="_ftnref2">²</a><br /> <br /> If these rules apply, the passive activity gross income and passive activity deductions from that activity are determined under the following rules: (1) the applicable percentage of each item of the taxpayer&rsquo;s income for the taxable year from interest charged to the borrowing entity is treated as passive activity gross income from the activity; and (2) the applicable percentage of each deduction for the taxable year for interest expense that is properly allocable to the taxpayer&rsquo;s income from the interest charged to the borrowing entity is treated as a passive activity deduction from the activity.<a href="#_ftn3" name="_ftnref3">³</a><br /> <br /> Interest expense is properly allocable to the taxpayer&rsquo;s income if it is allocated under Temporary Treasury Regulation Section 1.163-8T to an expenditure that: (1) is properly chargeable to a capital account with respect to the investment producing the interest income; or (2) may reasonably be taken into account as a cost of producing the item of interest income.<a href="#_ftn4" name="_ftnref4">⁴</a><br /> <br /> The applicable percentage is determined by dividing (1) the taxpayer&rsquo;s share for the taxable year of the borrowing entity&rsquo;s self-charged interest deductions that are treated as passive activity deductions from the activity by (2) the greater of: (a) the taxpayer&rsquo;s share for the taxable year of the borrowing entity&rsquo;s aggregate self-charged interest deductions for all activities (regardless of whether the deductions are treated as passive activity deductions); or (b) the taxpayer&rsquo;s aggregate income for the taxable year from interest charged to the borrowing entity for all activities of the borrowing entity. The applicable percentage is determined separately for each activity.<a href="#_ftn5" name="_ftnref5">⁵</a><br /> <br /> <em>Entity loans to the taxpayer.</em> Similarly, the self-charged interest rules apply for a taxable year if (1) the lending entity has gross income for the entity taxable year from interest charged by the lending entity to persons who own direct or indirect interests in the lending entity at any time during the entity taxable year; (2) the taxpayer owns a direct or indirect interest in the lending entity at any time during the entity&rsquo;s taxable year and has deductions for the taxable year for interest charged by the lending entity to the taxpayer or a passthrough entity through which the taxpayer holds an interest in the lending entity; and (3) the taxpayer&rsquo;s deductions for interest charged by the lending entity include passive activity deductions.<a href="#_ftn6" name="_ftnref6">⁶</a><br /> <br /> If the rules apply, the passive activity gross income and passive activity deductions from the activity are determined under the following rules: (1) the applicable percentage of the taxpayer&rsquo;s share for the taxable year of each item of the lending entity&rsquo;s self-charged interest income is treated as passive activity gross income from the activity; (2) the &ldquo;applicable percentage&rdquo; of the taxpayer&rsquo;s share for the taxable year of each deduction for interest expense that is properly allocable to the lending entity&rsquo;s self-charged interest income is treated as a passive activity deduction from the activity.<a href="#_ftn7" name="_ftnref7">⁷</a><br /> <br /> Interest expense is properly allocable to the taxpayer&rsquo;s income if it is allocated under Temporary Treasury Regulation Section 1.163-8T to an expenditure that: (1) is properly chargeable to a capital account with respect to the investment producing the interest income; or (2) may reasonably be taken into account as a cost of producing the item of interest income.<a href="#_ftn8" name="_ftnref8">⁸</a><br /> <br /> The applicable percentage is determined by dividing (1) the taxpayer&rsquo;s deductions for the taxable year for interest charged by the lending entity, to the extent treated as passive activity deductions from the activity, by (2) the greater of: (a) the taxpayer&rsquo;s aggregate deductions for all activities for the taxable year for interest charged by the lending entity (regardless of whether these deductions are treated as passive activity deductions); or (b) the taxpayer&rsquo;s aggregate share for the taxable year of the lending entity&rsquo;s self-charged interest income for all activities of the lending entity. The applicable percentage is determined separately for each activity.<a href="#_ftn9" name="_ftnref9">⁹</a><br /> <br /> Special rules apply to situations where a loan occurs between identically-owned passthrough entities.<a href="#_ftn10" name="_ftnref10">¹⁰</a><br /> <br /> If the taxpayer and the passthrough entity have different taxable years or accounting methods, related interest income and interest deductions may be recognized in different years, possibly with adverse results.<a href="#_ftn11" name="_ftnref11">¹¹</a><br /> <br /> The self-charged interest rules apply to taxable years ending after 1986, unless the passthrough entity makes an election to have the rules not apply. Such an election applies to the taxable year for which the election is made and all subsequent years until the election is revoked. An election can be revoked only with the consent of the IRS.<a href="#_ftn12" name="_ftnref12">¹²</a><br /> <br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>. Treas. Reg. &sect; 1.469-7.<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>. Treas. Reg. &sect; 1.469-7(c)(1).<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>. Treas. Reg. &sect; 1.469-7(c)(2).<br /> <br /> <a href="#_ftnref4" name="_ftn4">4</a>. Treas. Reg. &sect; 1.469-7(f).<br /> <br /> <a href="#_ftnref5" name="_ftn5">5</a>. Treas. Reg. &sect; 1.469-7(c)(3).<br /> <br /> <a href="#_ftnref6" name="_ftn6">6</a>. Treas. Reg. &sect; 1.469-7(d)(1).<br /> <br /> <a href="#_ftnref7" name="_ftn7">7</a>. Treas. Reg. &sect; 1.469-7(d)(2).<br /> <br /> <a href="#_ftnref8" name="_ftn8">8</a>. Treas. Reg. &sect; 1.469-7(f).<br /> <br /> <a href="#_ftnref9" name="_ftn9">9</a>. Treas. Reg. &sect; 1.469-7(d)(3).<br /> <br /> <a href="#_ftnref10" name="_ftn10">10</a>. Treas. Reg. &sect; 1.469-7(e).<br /> <br /> <a href="#_ftnref11" name="_ftn11">11</a>. See Treas. Reg. &sect; 1.469-7(h) (Ex. 4).<br /> <br /> <a href="#_ftnref12" name="_ftn12">12</a>. Treas. Reg. &sect; 1.469-11(a)(4); Treas. Reg. &sect; 1.469-7(g).<br /> <br /> </div></div><br />