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The Congress' work was not complete. There remained a "fly
in the ointment" because of restrictions on multiple notices of
deficiency for the same tax year, the Treasury's temporary
regulations required that section 183 elections be accompanied by
general waivers of the statute of limitations. Thus, all the
non-hobby-loss elements of a taxpayer’s liability for a year had
to be held in suspense until the hobby-loss matters were dealt
with. In order to deal with this limited problem, section
183(e)(4) was enacted by the Tax Reform Act of 1976 (1976 Act),
Pub. L. 94-455, sec. 214, 90 Stat. 1520, 1549. The committee
reports described the situation in pertinent part as follows:
Present law
* * * * * * *
If, at the end of a given year, the taxpayer has not
conducted the activity for 5 (or 7) years, a special
provision allows the taxpayer to elect to postpone a
determination as to whether he can benefit by this
presumption until he has conducted the activity for 5 (or 7)
years (sec. 183(e)). This election was added to the Code in
1971. The committee reports at that time express an intent
that a taxpayer who makes the election should be required to
waive the statute of limitations for the 5 (or 7) year
period and for a reasonable time thereafter. The aim was to
prevent the statute of limitations (3 years, in the usual
case) from running on any year in the period. The taxpayer,
it was believed, should have time to claim a refund of tax
paid by him during the period and the Internal Revenue
Service should also have time to assess any deficiency owed
by the taxpayer for any year in the period.
* * * * * * *
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