If a taxpayer is involved in several different business operations during the year, how is the determination made as to how many activities these operations constitute for purposes of the passive activity loss rules?
b.	Can a business operation and a rental operation ever be combined into one activity? Explain.

Question content area bottom

Part 1

a. If a taxpayer is involved in several different business operations during the year, how is the determination made as to how many activities these operations constitute for purposes of the passive activity loss rules?

A.

Under the regulations, taxpayers may not treat one or more activities as a single activity.

B.

Under the regulations, different business operations may constitute one or more activities, depending upon all the pertinent facts and circumstances. The facts that are given the least weight in this determination include: similarities and differences in types of business, exent of common control, extent of common ownership, geographical location, and interdependencies between the operations. Once this determination is made, taxpayers do not have to be consistent from year to year.

C.

Under the regulations, different business operations may constitute one or more activities, depending upon all the pertinent facts and circumstances. The facts that are given more weight in this determination include: similarities and differences in types of business, extent of common control, extent of common ownership, geographical location, and interdependencies between the operations. Once this determination is made, taxpayers must be consistent from year to year.

D.

Under the regulations, different business operations may constitute one or more activities, depending upon all of the facts and circumstances. The facts that are given more weight in this determination include: only similarities in types ofbusiness, extent of common ownership, geographical location, and interdependencies between the operations. Once this determination is made, taxpayers can change the grouping of these activities from year to year without a reason.

Part 2

b. Can a business operation and a rental operation ever be combined into one activity? Explain.

A.

A business operation and a rental operation cannot be combined into the same activity for purposes of the passive activity loss rules. Some exceptions are: the business operation and the rental operation are situated at the samelocation, the business operation is substantial in comparison to the rental operation, or the businesses have been identified as separate activities in previous years, the two may be combined into one activity. The Regulations do not define what constitutes substantial.

B.

A business operation and a rental operation can be combined into the same activity for purposes of the passive activity loss rules.

C.

A business operation and a rental operation cannot be combined into the same activity for purposes of the passive activity loss rules. However, if the business operation and the rental operation are situated at the same location and the business operation is insubstantial in comparison to the rental operation, or vice versa, the two may be combined into one activity. The Regulations do not define what constitutes insubstantial.

D.

A business operation and a rental operation cannot be combined into the same activity for purposes of the passive activity loss rules, no exceptions.