IRS PASSIVE ACTIVITY RULES: PROVING THE TIME DEDICATED IN YOUR BUSINESS

All tax practitioners are aware how unyielding the tax code can be to those who lack sufficient planning and learn of the law’s arcane requirements only after the fact. One recent tax court case re-affirming this lesson is Williams v. Commissioner, TC Memo 2014-158 (August 2014), where a taxpayer lost out on deductions from his aircraft business due to his failure to provide the court with sufficient proof of his day-to-day work.

KEY TAX EXPOSURE AREA: PASSIVE ACTIVITY PROTECT YOURSELF WITH PROPERLY FILED ELECTIONS

A notable milestone in the cat-and-mouse game of individuals seeking to minimize tax burden and Congress making new laws to end potential shelter activity is the Passive Activity Rule, which was originally enacted as part of the Tax Reform Act of 1986, and which recent developments have brought prominently to the minds of tax advisors. In particular, an important one-time opportunity to avoid being trapped under this rule arises from new IRS regulations issued in November 2013 due to the new net-investment income tax passed as part of the 2010 Patient Protection and Affordable Care Act (a/k/a “Obamacare”).

IRS RELEASES IMPORTANT NEW GROUPING RULES FOR AIRCRAFT OPERATORS

Revenue Procedure 2010-13 Effective for Years Beginning After January 25, 2010

There are a number of good business reasons to isolate aircraft ownership and operation in stand alone entities. The benefits often include liability protection, confidentiality, sales and use tax control, and transferability of business interest. Current federal income tax benefits are rarely enhanced by using a stand alone structure; in fact, without proper planning federal tax benefits can be suspended or lost entirely based on the structure chosen.

IRS PROPOSES NEW PASSIVE ACTIVITY GROUPING RULES GROUPING OF YOUR AIRCRAFT INTO YOUR PRIMARY BUSINESS

Aircraft Income Tax, Passive Activity & Hobby Loss

HOW TO QUALIFY YOUR FLIGHT SCHOOL AIRCRAFT AS AN ACTIVE TRADE OR BUSINESS

Aircraft Income Tax, Passive Activity & Hobby Loss