Does anyone know if rental income received by a partnership is considered self rental if it comes from a corporation owned by the same individuals in the same % of ownership. I have only been able to find the reference at the individual level and not the partnership level. I am trying to properly classify it for the type classification on the supplemental information for box 2 of the 1065 k-1. I think it would still apply but cannot locate that specific reference. Thanks for the help.
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Here's a case that may be helpful
This is a link to a case that is very close to your situation. Petitioner owned a C Corp in which he materially participated, as well as an S Corp and a Partnership that leased equipment to the C Corp (Trucking Business).
The S Corp produced a Profit and the Partnership produced a Loss. The taxpayer classified both activities as Passive, allowing the loss to offset the profit.
The IRS challenged this position and successfully "re-classified" the activity that produced the loss as "Passive" and the activity that produced the profit as "Non-Passive" which effectively disallowed the loss and created a tax liability from the profit. A very good case to review, fairly recent too (August of 2012). Also, here is an author's commentary on the case for "cliff notes": http://www.tktaxknowledge.com/2012/0...rs-veriha.html
The author mentions ways to potentially avoid this self rental rule such as Grouping the Activities. This is done by attaching an election to the tax return each year the taxpayer wishes to group the activities. Here is another article that discusses the qualifications of grouping activities: http://www.journalofaccountancy.com/...RealEstate.htm
I hope that helps.Circular 230 Disclosure:
Don't even think about using the information in this message! -
As in addition to grouping election: beware that if one company is sold at a loss, this loss can only be released if all companies are sold.Comment
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