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General reasons for change
* * * * * * *
In order to accomplish the purposes which Congress
sought when it enacted the look-forward presumption of
section 183(e), it is not necessary to keep the statute of
limitations open for all issues on the taxpayer’s return
during the 5 (or 7) year period. The only issues on which
the statute of limitations needs to remain open concern the
deductions which will be tested as to whether they are
incurred in an activity which the taxpayer engaged in for
profit. Your committee believes that a taxpayer should be
able to take full advantage of a statutory presumption which
was intended for his benefit, without unnecessarily
extending the statute of limitations for items on his return
which are unrelated to deductions which might be disallowed
under section 183.
Explanation of provisions
* * * * * * *
If a taxpayer makes an election under section 183(e) of
present law and postpones a determination whether he engaged
in a particular activity for profit, the making of such
election automatically extends the statute of limitations,
but only with regard to deductions which might be disallowed
under section 183. The taxpayer would not have to agree to
extend the statute of limitations for any other item on his
return during the 5 (or 7) year period. On the other hand,
even if the taxpayer has petitioned the Tax Court with
regard to an unrelated issue on his return for any year in
the same period, the Service will be able to issue a second
notice of deficiency relating to a section 183 issue as to
any taxable year in the period. [H. Rept. 94-658, at 127-
129 (1975), 1976-3 C.B. (Vol. 2) 695, 819-821; see S. Rept.
94-938 (Part 1), at 66-69 (1976), 1976-3 C.B. (Vol. 3) 49,
104-107; Staff of the Joint Comm. on Taxation, General
Explanation of the Tax Reform Act of 1976, at 59-62, 1976-3
C.B. (Vol. 2) 71-74; emphasis added and fn. ref. omitted.]
Thus, in the 1976 Act, the Congress reaffirmed that the 1971
Act had resulted in both taxpayers’ and the IRS’ having
correlative rights to claim refunds and assess deficiencies for
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