The New Activity Regulations Under Section 469: Into the Abyss

71 Pages Posted: 24 Apr 2009

Date Written: Winter 1990

Abstract

As part of the Tax Reform Act of 1986, Congress enacted Section 469 of the Internal Revenue Code, the passive loss rules. These rules are part of a largely successful effort by Congress to eliminate the incentive to invest in tax shelters. The regulations promulgated by the Internal Revenue Service (IRS) are amazingly complex and well beyond anything contemplated by Congress. Instead of focusing on passive losses, the IRS seems to be trying to prevent taxpayers from earning passive income. Since the activity regulations conflict with the legislative history in many areas, it is an open question whether the regulations are valid notwithstanding Congress' broad delegation of regulatory authority. Even if a court rules that portions of the regulations are invalid, other portions could be upheld. Choosing which regulations will survive and which will not, and in what manner, is too hazardous an undertaking on which to embark. Furthermore, the regulations constitute the only detailed guidance available.

Keywords: Tax Reform Act of 1986, passive loss rules, passive income, legislative history, taxation, IRS, Internal Revenue Service

JEL Classification: H24, H29, K34

Suggested Citation

Schwidetzky, Walter D., The New Activity Regulations Under Section 469: Into the Abyss (Winter 1990). Virginia Tax Review, Vol. 9, No. 3, 1990, Available at SSRN: https://ssrn.com/abstract=1388042

Walter D. Schwidetzky (Contact Author)

University of Baltimore - School of Law ( email )

1420 N. Charles Street
Baltimore, MD 21218
United States
(410) 837-4410 (Phone)
(410) 837-4492 (Fax)

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