New Regs. defining "activity" show how to make the most of the passive loss rules

Article Abstract:

The term "activity" is defined in the second part of the Proposed and Temporary Regulations under Section 469 (TD 8253). The Regulations define an "undertaking" as the smallest discrete unit constituting an activity. An activity consists of integrated business undertakings controlled by the same interest. Activity determines the level of taxpayer participation in loss limitation. Participation in an activity exceeding 500 hours a year will indicate an activity is not passive. Exclusion from a passive activity classification is beneficial when there are losses. In the first year, a taxpayer may elect to treat aggregated undertakings other than rental real estate as separate activities for purposes other than material participation. A nonaggregate election allows the taxpayer with deferred passive activity losses a full deduction when liquidating either the whole or part of an undertaking that has produced some of the losses.

Loss deductions

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Even insolvent taxpayers may have income when property is abandoned

Article Abstract:

Insolvent taxpayers who transfer property to a creditor to discharge indebtedness may find that the transfer results in taxable income. In cases where the value of the transferred asset exceeds its basis, part of the income from the transfer may be ineligible for the discharge of indebtedness insolvency exclusion. The insolvency exclusion contained in Section 108(a)(3) of the Internal Revenue Code states that insolvent taxpayers may exclude income from discharge of indebtedness from their taxable income up to the extent that the discharge results in solvency. The court's decision in Dallas Transfer and Terminal Warehouse Co was that the taxpayer could not recognize income because solvency did not occur as a result of transferring property to a creditor. IRS Ruling 90-16 may prevent insolvent debtors from filing for bankruptcy as a means of resolving credit problems.

Taxation, Income tax, Debtor and creditor, Abandonment of property, Abandonment (Law)

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