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Passive Losses

Instructional MethodAdvanced PreparationProgram PrerequisitesField Of Study Interactive Self Study NONE Basic Understanding of Taxes Taxes Experience LevelCourse IDCPE CreditsAuthor Basic to Intermediate DS-123 16 Danny Santucci Passive Losses Course Description: This course addresses ...Read more
  • Description
Instructional Method Advanced Preparation Program Prerequisites Field Of Study
Interactive Self Study NONE Basic Understanding of Taxes Taxes
Experience Level Course ID CPE Credits Author
Basic to Intermediate DS-123 16 Danny Santucci

Passive Losses

Course Description:
This course addresses the practical aspects of §469 and the needed skill to handle pragmatic issues. Fundamentals are reviewed, planning opportunities identified, creative strategies discussed and evaluated along with remaining traditional approaches. The goal of this instructive program is to understand and solve problems under §469, with emphasis on tax savings ideas. Readers will overview the proper administration of this complex and often cumbersome provision.

Who Should Attend: CPAs

Topics Covered:
CHAPTER 1 Overview
CHAPTER 2 Material Participation
CHAPTER 3 Activity Definition
CHAPTER 4 Passive & Nonpassive Activities
CHAPTER 5 Passive Activity Loss
CHAPTER 6 Passive Activity Gross Income
CHAPTER 7 Passive Activity Deduction
CHAPTER 8 Passive Activity Credits
CHAPTER 9 Items Received From Pass-Through Entities
CHAPTER 10 Interaction with Other Code Sections

Learning Objectives:

After reading Chapter 1, participants will be able to:

1. Recognize the broad impact of the §469 limitation provision by:

a. Recalling the differences between prior law loss treatment and the former and current treatment of losses;

b. Citing the prior tax shelter problem and Congress’s motives and rationales in passing §469;

c. Specifying economic decision-making changes caused by the limitation;

d. Identifying income and loss into categories; and

e. Recognizing  the concept of investor participation as central in determining the allowance of a passive loss.

2. Specify the mechanics of the passive loss rules, recognize the impact of  §469 to appropriate deductions, identify what type of income may be offset by passive losses and then, determine a passive loss.

3. Identify passive losses under §469 by:

a. Citing the “bucket” analogy of §469 to:

(i) specify the categories of a client's annual income noting the limitation’s impact, and

(ii) determine “passive items” and “material participation” under §469;

b. Locating portfolio income based on items deemed nonpassive under the Code; and

c. Identifying circumstances that allow for special treatment of income and loss.

4. Recognize the suspension of disallowed losses, identify ways to ultimately "free up" passive losses, specify the treatment of passive credits including potential basis adjustment, and determine a fully taxable disposition indicating the impact of related party transactions.

5. Identify the impact and tax consequences of a fully taxable disposition (FTD) by:

a. Determining an entire interest disposition, particularly for a partnership or grantor trust;

b. Specifying the allowance of suspended losses upon installment sale, exchange, gift or death;

c. Selecting the order of recognized tax attributes upon a FTD; and

d. Recognizing ways to escape the application of the FTD and other passive loss rules particularly for closely held corporations and personal service corporations that change their operations and nature.

6. Identify which clients are or are not subject to the passive loss rules by:

a. Specifying types of corporations to which §469 applies and citing the elements of their Code definitions;

b. Recognizing the general rental activity rule exception noting eligibility requirements

c. Determining “pre-enactment interest,” “qualified interest” and “pre-enactment activity” identifying their §469 “phase in” treatment; and

d. Citing §469’s effective date and recognizing the IRS’s application authority under 469(l).


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