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Treasury’s Passive Activity Interest Abuse of Power  


Author:  David Randall Jenkins.


Source: Volume 34, Number 03, Spring 2017 , pp.51-69(19)




Journal of Taxation of Investments

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Abstract: 

The tax law resource allocation battle among closely held business, real property, and capital market investments has a long history. The introduction of Section 469’s passive activity loss rules by the Tax Reform Act of 1986 dealt a devastating blow to the two former categories in favor of the last. Congress’s announced 1986 policy goal was to limit tax sheltering activities so as to provide a more level and equitable playing field to accommodate foreseeable reductions in tax rates for all taxpayers. But Section 469’s overreaching unfavorable risk-return combination and resource allocation consequences immediately manifested themselves. Within two years, the devastation’s scope became apparent. Treasury responded by promulgating Treasury Regulation Section 1.469-2T(c)(2) to somewhat restore resource allocation parity. In the author’s opinion, Treasury’s view on passive activity interest disposition gains is inconsistent with legislative intent and public policy, however, and therefore should be retracted.

Keywords: IRC Sec. 469, Treas. Reg. Sec. 1.469-2T(c)(2), passive activity interest disposition gain, passive activity loss suspension, legislative regulatory empowerment

Affiliations:  1: Algorithm LLC.

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