Ezel / IRS Rulings / 201244017

CCA 201244017: Trusts cannot qualify for the individual real-estate-professional tests under section 469(c)(7)

Number
201244017
Outcome
Advice
Document type
Chief Counsel Advice
IRS subject
Passive Activity Losses and Credits Limited
Topics
Accounting methods and periods
Code sections
§ 469
Ruling dated
August 3, 2012
Publicly released
November 2, 2012
Source
View Official PDF

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This page covers legal advice the IRS Office of Chief Counsel wrote for IRS staff, issued in 2012, which can't be cited as precedent. Ask about your situation and see what the current Code and IRS guidance say, with citations.

Currency note: this determination was released in 2012
Statutory amendments, regulation changes, court decisions, or later IRS guidance may have changed the analysis since then. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, threshold, or position mentioned here.
Not precedent. Under 26 U.S.C. § 6110(k)(3), this written determination may not be used or cited as precedent. It is advice from the IRS Office of Chief Counsel to IRS personnel on the facts they presented, and identifying details were redacted by the IRS before release. The official IRS release (linked on this page as a PDF) is the authoritative source.
About this page: The plain-English summary and ruling snapshot below were written by Ezel based on the official IRS release. The full text is the IRS's own document.
View official IRS release (PDF)

Plain-English summary

Chief Counsel advised that a trust cannot satisfy the qualifying tests in IRC § 469(c)(7)(B) because those tests apply to individuals. The advice focused on the requirement that the taxpayer perform personal services. The memorandum also noted that IRC § 469(c)(7)(D)(i) separately addresses closely held C corporations, but provides no comparable rule for trusts, estates, or personal service corporations. The position was also described as consistent with the legislative history of section 469(c)(7).

Ruling snapshot

  • Question: Can a trust qualify under the individual tests in IRC § 469(c)(7)(B)?
  • Outcome: Advice given
  • Key authorities: IRC § 469(c)(7)(B) and § 469(c)(7)(D)(i); Treas. Reg. § 1.469-9(b)(4)

Full text (IRS public release)

ID: CCA_2012080309103626 Number: 201244017
Release Date: 11/2/2012
Office: ----------------------------
UILC: 469.00-00

From: -----------------------------
Sent: Friday, August 03, 2012 9:10:40 AM
To: -------------------------
Cc: ----------------------------------------------
Subject: RE: ------

It is our position that a trust cannot meet the qualifying tests of 469(c)(7)(B) because those tests are intended to apply only to individuals. Only individuals are capable of performing "personal services" (as defined in section 1.469-9(b)(4)), and the statute specifically states that the personal services must be performed by the taxpayer. Section 469(c)(7)(D)(i) provides a separate "gross income" test for closely held C corporations to qualify for treatment under section 469(c)(7), but the statute otherwise does not provide any rules for trusts, estates, or personal service corporations. We believe this position is not only supported by a plain reading of the statute and regulations, but by the legislative history for section 469(c)(7) which explicitly states that this provision is intended to apply to individuals and closely held C corporations. We believe it is clear that trusts, estates, and personal service corporations do not fall within the definition of "individuals" for this purpose.

The case currently before the Tax Court on this issue is Frank Aragona Trust, TL-15392-11.

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