In 2019, Mike Taxpayer deducted losses he incurred from an Internet retail business operated by Mike and his sister. Following a recent audit, the Internal Revenue Service determined that Mikes losses were passive and were not deductible against non-passive activity income. The agents Revenue Agent Report (RAR) specifically noted that the membership interest fell under section 469(h)(2) of the Internal Revenue Code of 1986.

Mikes business is organized as a limited liability company (LLC) in Ohio. Mike and his sister are the only employees and each works about 20 hours a month managing the business operations. The LLC has no other members and employees or members.

Please provide a strong argument and uses legal authorities that Mike Taxpayer might raise in defense of his deduction of these losses.