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employee of a real estate business, acting in any capacity, might
try to deduct losses from a real estate tax shelter against his
wages;5 hence, it added the “5–percent owner” rule of section
469(c)(7)(D)(ii) to ensure that only individuals who are
substantial owners of real estate businesses will benefit from
the exception.
We believe section 469(c)(7)(D)(ii) survives an equal
protection challenge, for Congress acted rationally in denying
relief to an employee of a real estate business who lacks an
ownership stake in that business.
Petitioners argue that the statute is arbitrary because it
does not extend to independent contractors. They claim that, had
petitioner been an independent contractor rather than an employee
of the engineering consulting firms, their rental real estate
losses would have been deductible against active income. We
reject their argument, for it is well settled that rational basis
review “is not a license for courts to judge the wisdom, fair-
ness, or logic of legislative choices.” FCC v. Beach Communica-
tions, Inc., 508 U.S. 307, 313 (1993); see also Nordlinger v.
Hahn, 505 U.S. 1, 10 (1992); United States R.R. Retirement Bd. v.
Fritz, 449 U.S. 166, 175 (1980). To be sure, “a State does not
5Consider, for example, a real estate lessor and full–time
bookkeeper of a construction company who treats the rental
activity as nonpassive because he counts his employee services as
performed in a real property trade or business.
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Last modified: May 25, 2011