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Washington Tax Alert – September 7, 2010 – (passive losses; accounting method)

Washington Tax Alert from Don Barnes
September 7, 2010

The IRS National Office recently issued a technical advice memorandum holding that the determination of whether a taxpayer materially participates in a partnership’s activity for purposes of IRC § 469 is not a method of accounting, but rather an annual factual determination. See TAM 201035016. Consequently, upon examination, an examining agent could not impose an IRC § 481 adjustment where the taxpayer consistently failed to treat the partnership’s losses as passive. The taxpayers in the TAM were partners in a partnership that owned and operated a nursing home, but retained a management company to operate the nursing home.

This issue whether IRC § 469 is an accounting method provision had been unclear due to certain comments made by the Tax Court in a 1998 case.