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Tax Blawg

Tax Talk for Tax Pros

Introduction

Welcome to TaxBlawg, a resource for news and analysis of current legal issues facing tax practitioners. Although blawg.com identifies nearly 1,400 active “blawgs,” including 20+ blawgs related to taxation and estate planning, the needs of tax professionals have received surprisingly little attention. The Wall Street Journal's Tax Blog gives “tips and advice for filers,” and Paul Caron’s legendary TaxProf Blog is an excellent clearinghouse for academic and policy-oriented news. Yet, tax practitioners still lack a dedicated resource to call their own. For those intrepid souls, we offer TaxBlawg, a forum of tax talk for tax pros.

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Better Late than Never: IRS Radically Changes Aggregation Election Procedures in Passive Activity Cases

The tax code is best known for its strict rules, but it also features hundreds of taxpayer-favorable elections.  The first step to evaluating and possibly taking advantage of these elections is being aware of their existence.  Unfortunately, taxpayers and/or their advisors sometimes overlook an election or fail to follow the related procedures.  A classic example is the so-called "aggregation election," under which taxpayers who qualify as real estate professionals can choose to combine all their interests in real estate endeavors for purposes of the passive activity rules in Section 469.  If taxpayers make a timely aggregation election, they often meet the "material participation" test and are thus able to claim their real estate losses in the year that they actually occur.  If not, the losses are largely suspended.

Taxpayers who neglect to follow the aggregation-election procedures have historically had two main options:  (i) seek a private letter ruling from the IRS granting permission to file a retroactive election, or (ii) litigate the case on grounds that they made a "deemed election" or "substantially complied" with the election procedures.  Both options have significant downsides for taxpayers.  Times have changed, though.  The IRS recently issued Rev. Proc. 2011-34, which sets forth special procedures allowing certain taxpayers to make an expedited, inexpensive, late aggregation election.  My article, titled “Better Late than Never:  IRS Radically Changes Aggregation Election Procedures in Passive Activity Cases,” analyzes passive loss limitation rules, material participation standards, aggregation elections, and the pros and cons of various methods for rectifying non-election situations, including reliance on Revenue Procedure 2011-34.  The article was published in the most recent issue of Journal of Tax Practice & Procedure.

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    Hale is a partner in the Tax Controversy Section, Chair of the International Tax Group, and Member of the Executive Committee. He helps individuals and businesses with tax disputes and compliance projects ...