- 7 -
relation to a legitimate governmental purpose. See Regan v.
Taxation With Representation, supra at 547.
Congress was rationally justified in enacting a revenue
measure under section 469(i) that preferentially treated certain
qualifying taxpayers in the rental real estate business.
Section 469 was generally enacted to reduce the number of tax
shelters prevalent at the time of its enactment. The Senate
Finance Committee report provides that the extensive use of
rental activities for tax shelter purposes under prior law,
combined with the reduced level of personal involvement necessary
to conduct such activities, made it clear that a change in the
law was necessary to eliminate the losses claimed relating to
such activities. See S. Rept. 99-313, at 713-746 (1985), 1986-3
C.B. (Vol. 3) 1, 713-746. As to the reason for the allowance of
the $25,000 offset for rental real estate activities, the Senate
Finance Committee Report states:
For the purposes of the passive loss provision,
rental activities are treated as passive without regard
to whether the taxpayer materially participates. * * *
In the case of rental real estate, however, some
specifically targeted relief has been provided because
rental real estate is held, in many instances, to
provide financial security to individuals with moderate
incomes. In some cases, for example, an individual may
hold for rental a residence that he uses part-time, or
that previously was and at some future time may be his
primary residence. Even absent any such residential
use of the property by the taxpayer, the committee
believes that a rental real estate investment in which
the taxpayer has significant responsibilities with
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