- 38 -
ment role, absent more, may fall short of the level of
involvement that the material participation standard in
the provision is meant to require. [S. Rept. 99-313,
supra, 1986-3 C.B. (Vol. 3) at 734-735.]
That legislative history further states in pertinent part:
It is clarified that an individual who works full-time
in a line of business consisting of one or more busi-
ness activities generally is likely to be materially
participating in those activities * * * even if the
individual's role is in management rather than opera-
tions.
This clarification * * *. * * * recognizes the
substantial likelihood that, despite the difficulty in
many circumstances of ascertaining whether the manage-
ment services rendered by an individual are substantial
and bona fide, such services are likely to be so when
the individual is rendering them on a full-time basis
and the success of the activity depends in large part
upon his exercise of business judgment. [H. Conf.
Rept. 99-841 (Vol. II), supra, 1986-3 C.B. (Vol. 4) at
147-148.]
In addition, we believe that a material participation test
that focuses on the amount and extent of time spent by a taxpayer
in connection with the operations of an activity is consistent
with the underlying purpose of section 469. Congress added the
passive activity loss rules to the Code in 1986 as a response to
the prevalent use of tax shelters and as an attempt to foster
equity within the tax system. S. Rept. 99-313, supra, 1986-3
C.B. (Vol. 3) at 713-714; see Adler v. United States, 32 Fed. Cl.
736, 738 (1995). Prior to 1986, taxpayers often reduced their
tax liability by investing in business ventures that generated
tax losses in excess of economic losses and by using those
artificial losses to offset unrelated income (e.g., salary or
Page: Previous 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 NextLast modified: May 25, 2011