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: Suggested Citation