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:: Passive Activity Loss ATG - Introduction
Introduction
The Audit
Technique Guide (ATG) on Passive
Activity Losses (PAL) has been
significantly revised to reflect
an issue-based format.
Additionally, it has been
updated to encompass current
emerging issues, changes to Form
8582, Passive Activity Loss
Limitation, and recent case law.
The guide was developed to
provide Revenue Agents and Tax
Compliance Officers with
technical information and tools
to examine issues relating to
both income and losses from
passive activities.
This text
provides specific guidance on
potential audit issues along
with summaries of the applicable
Internal Revenue Code (IRC) and
Federal Tax Regulations
(Regulations) and highlights of
common errors. We have attempted
to write this ATG in plain
layman’s language, addressing
issues which may be encountered
on an audit. The text is not all
encompassing and does not cover
every exception. The IRC § 469,
the related Regulations, and
case law may have to be
researched.
Included in the
ATG are many job aids, designed
to be used by examiners: a
summary of court cases,
checksheets for common issues,
and decision trees. Examiners
are reminded that the
checksheets have been provided
to assist the examiner, but are
not all encompassing. The IRC §
469 and the related Regulations
may have to be researched. In
some instances, line numbers on
various forms have been
referenced. The examiner is
reminded that line numbers may
change from year to year. The
job aids can be located at the
end of each chapter. A summary
of court cases and rulings can
be located in the first exhibit
in Chapter 1.
While certain
provisions of the IRC § 469 are
explained, the primary focus of
this text is not an in-depth
explanation of the law or Form
8582, but rather a guide to
current and emerging audit
issues. Regulations for
activities (grouping rules for
related entities), real estate
professionals and self-charged
interest have been finalized.
However, the majority of the IRC
§ 469 regulations remain in
temporary format. Temporary
Regulations carry the same
weight of authority as final
regulations. Regulations have
not yet been issued on
dispositions and on trusts.
This material
can be used in a classroom
setting or as a self-study
guide. Each lesson is designed
to be self-contained. However,
in most instances, Chapter 1,
Overview, should be reviewed, as
the concepts are intrinsic to an
understanding of later lessons.
Additional information on
passive activities can be found
at the PAL Intranet site or you
can call the Passive Loss
Technical Advisor, Lucy Clark at
(603) 433-0723 or Kelly H. Myers
at (949) 322-7156.
A Quick
Look Inside!
What’s
in here that would make me
interested enough to go on?
-
Help with
Form 8582 – Chapter 1
-
Cases –
very first exhibit in
Chapter 1
Lots of
issues you might see
-
Equipment
and vehicle leases – Chapter
2
-
Real estate
professionals – Chapter 2
-
Rental real
estate – Chapter 2
-
Vacation
condos, hotels, Bed &
Breakfast (B&B) – Chapter 2
-
Income
issues on Form 8582 –
Chapter 3
-
Property
leased to a business where
the taxpayer works – Chapter
3
-
Land leases
– Chapter 3
-
Material
participation – Chapter 4
-
What time
does and does not count in
the hourly tests – Chapter 4
-
When losses
are not triggered on
disposition - Chapter 5
-
When gain
on disposition should not be
on FORM 8582 – Chapter 5
-
Issues with
trusts (there’s lots of
them) – Chapter 6
-
C
corporation issues – Chapter
6
-
Rules for
Limited Liability Companies
(LLCs) – Chapter 6
-
Self-charged items – Chapter
6
-
When
interest expense is and is
not deductible – Chapter 7
-
Investment
interest is limited to
investment income – Chapter
7
-
When the
taxpayer’s grouping might be
wrong – Chapter 8
-
When you
might want to group related
business – Chapter 8
-
Issues with
credits – Chapter 9
Checksheets, decision trees and
other job aids at end of each
chapter.
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