Paul L. Caron

Wednesday, July 22, 2009

Court: LLCs Not Subject to Limited Partnership Passive Loss Disallowance Rule

Section 469(h)(2) treats a limited partnership interest as presumptively passive for purposes of the passive loss rules, with the result that partnership losses cannot offset the limited partner's salary or investment income. The Court of Federal Claims yesterday, in Thompson v. United States, No. 06-211 T (Fed Cl. July 20, 2009), followed the Tax Court's decision last month in Garnett v. Commissioner, 132 T.C. No. 19 (June 30, 2009) (blogged here), holding that LLC interests are not subject to § 469(h)(2).  As a result, members of LLCs can deduct LLC losses if they can prove that they materially participated in the LLC under the general rule of § 469(h)(1),

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Tracked on Jul 22, 2009 6:25:00 AM


How does this case fit in with to §469(c)(2), which defines rental activity as a passive activity? Does this mean if I materially participate in my LLC which, conducts rental activity, I can now deduct my losses against my primary income? This of course assumes that I am not a person a tax payer in who is deemed in the "real property business." §469(c)(7)

Posted by: Brian | Jul 22, 2009 10:09:02 AM