Chester F. and Faye L. Sidell - Page 9

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          section 1.469-4(a), Income Tax Regs.,2 respondent recharacterized           
          the rental income Mr. Sidell received in 1993 and 1994 from the             
          three properties leased to his wholly owned C corporation from              
          passive to nonpassive.                                                      
               As a consequence of this recharacterization, petitioners were          
          neither able to reduce such rental income by the losses from other          
          rental properties nor able to utilize certain rehabilitation                
          Section 469 and the Self-Rented Property Rule                               
               Pursuant to section 469(a), in general, a taxpayer is denied           
          both a passive activity loss and a passive activity credit for the          
          taxable year in which they arise.  A passive activity loss is               
          defined as the amount by which the aggregate losses from all                
          passive activities exceeds the aggregate income from all passive            
          activities for such years.  See sec. 469(d)(1).  Likewise, a                
          passive activity credit is defined as the amount by which the sum           
          of all allowable credits from passive activities exceeds the                
          regular tax liability of the taxpayer allocable to all passive              
          activities.  See sec. 469(d)(2).                                            
               Section 469 specifically excludes certain transactions and             

               2    Sec. 1.469-4(a), Income Tax Regs., provides, among                
          other things, that for grouping a taxpayer's trade or business              
          activities and rental activities for purposes of applying the               
          passive activity loss and credit limitations rules of sec. 469, a           
          taxpayer's activities include those conducted through C                     
          corporations that are subject to sec. 469.                                  

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