Osama A. Mowafi - Page 4




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          which limit the current recognition of passive activity losses.             
          Petitioner argues that he is excepted from the passive activity             
          loss limitation rules because, he asserts, he is a real estate              
          professional under section 469(c)(7).  Petitioner concedes that             
          respondent’s determination must be sustained if he is not a real            
          estate professional.                                                        
               Individuals such as petitioner are generally precluded from            
          currently deducting losses from a “passive activity”, a term that           
          is defined to include any trade or business activity in which the           
          taxpayer does not materially participate and all rental                     
          activities regardless of the taxpayer’s level of participation.             
          Sec. 469(a), (c)(1), (2), (4).  These passive loss rules, enacted           
          as part of the Tax Reform Act of 1986, Pub. L. 99-514, sec. 501,            
          100 Stat. 2085, 2233, prevent affected taxpayers from using                 
          deductions from a passive activity to shelter wages or other                
          active income.  See generally Staff of Joint Comm. on Taxation,             
          General Explanation of the Tax Reform Act of 1986, at 209-215 (J.           
          Comm. Print 1987).                                                          
               Although all rental activities are passive, Congress enacted           
          an exception for certain post-1993 rental activities.  See sec.             
          469(c)(7).  Under this provision, petitioner will be considered a           
          real estate professional, and the losses on his rental properties           
          will not be per se passive, to the extent that he proves that he            
          meets the following two requirements:  (1) He performed more than           






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