29/11/2018
Clarionbridge Tax Weekly - Individual’s Losses from Rental Activities Were Passive
An individual’s estate was required to treat the losses the individual incurred from her rental activities as passive losses; the estate failed to show that the individual was a real estate professional during the tax years at issue. The individual’s daughter testified that the individual was, indeed, a real estate professional. However, the estate did not offer any evidence to corroborate the testimony or substantiate the number of hours the individual devoted to any of her rental activities. The estate also failed to show that it could add the time the individual spent on separate properties to meet the other regulatory requirements for proof of material participation. Moreover, even if the individual was a real estate professional, she did not elect to treat all her rental properties as a single activity on her original returns for either of the two years at issue or for any other prior tax year. Without aggregation, the estate could not satisfy the material-participation requirement for any of its properties.
In addition, the estate was not liable for accuracy-related penalties. The individual’s liability had not been assessed at the time of her death; however, the individual herself was liable for her income-tax debts when she was alive. Therefore, while the individual decedent and her estate were legally distinct for federal tax purposes, the IRS as opposed to the estate had the burden of producing the evidence that the penalties were approved in writing by a supervisor. The IRS failed to show that the penalties were approved in writing by an IRS supervisor.
