Exhibit 6.1:
C Corporations:
Passive Activity
Issues
Personal Service
Corps
The
passive loss
limitations in IRC §
469 apply in full to
all PSCs, whether or
not closely held. A
passive loss cannot
offset corporate
income or portfolio
income - nor can it
create an NOL. A
passive loss goes on
Form 8810 and is
deductible only to
the extent of
passive income.
_____ Are there any
losses or credits
from rental or
leasing activities
offsetting corporate
and portfolio
income?
_____ Are there
any partnership or S
corporation losses
or credits which are
rental real estate
or leasing
activities?
Typical passive
activity credits:
low income housing
credit and
rehabilitation
credit.
_____ Are there
any businesses
conducted in
partnerships and S
Corporations in
which a 50 percent +
shareholder does not
materially
participate?
(See log at end of
Chapter 4.)
Closely Held C
Corporations
A
closely held C
Corporation that is
not a PSC can offset
a passive loss
against net against
net active corporate
income, but not
against portfolio
income. A
passive loss cannot
create an NOL.
Closely held means 5
or fewer
shareholders hold
more than 50 percent
of the stock at
year-end.
_____ Are losses
or credits from
rentals OR
partnership or S
Corporation
businesses in which
the corporation
(50 percent +
shareholder)
does not materially
participate in
offsetting interest,
dividends, gains on
stocks and bonds,
royalties or other
portfolio income in
error?
_____ Have losses
from rentals and
partnership or S
Corporations
businesses been
carried back in
error as NOLs?
Passive losses can
only be carried
forward. They
cannot be carried
back.
Related issues which
fall out on the
shareholder’s Form
1040:
Applies to both PSCs
and closely held C
Corporations.
_____ Is the
building owned by
the shareholder and
leased back to the
corporation? Or is
the building held in
a partnership and
leased back to the
corporation? If
so, net rental
income generally
should not be on
Form 8582 line 1a,
triggering otherwise
nondeductible
passive losses. See
Reg. §
1.469-2(f)(6).
_____ Is any
equipment or vehicle
held in partnership
or by the
shareholder
personally and
leased back to the
corporation? If
so, losses are may
be passive, i.e.
they belong on Form
8582 line 3b (2b
prior to 2002) on
the shareholder’s
Form 1040. Losses
from leasing
activities are
nondeductible in the
absence of passive
income. See IRC §
469(c)(2)(4).
