Wednesday, July 22, 2009

IRS Defeated

"The IRS lost a key battle in its long-running fight to limit tax deductions that can be taken by investors in small businesses in a case that could have wide implications for entrepreneurs. The Tax Court decision would allow investors in certain kinds of businesses to deduct losses against salary and investment income. Right now, investors often can only deduct losses in a business against future profits from that business, which in some cases prevents taxpayers from getting to use the deductions at all. ... The decision specifically applies to investors in limited-liability companies and limited-liability partnerships and benefots those who actively work in several businesses. ... Under this decision, losses from the two businesses could offset salary or investment income earned by both. The IRS has long taken the position that losses generated by businesses held within LLPs and LLCs can't generally be used to offset salary and investment income. The IRS position has had the effect of forcing investors in LLPs and LLCs to delay loss deductions, sometimes for years. ... Investors who are active in such businesses want to use LLP and LLC losses to offset other income, but the IRS has consistently challenged that. It believes these losses should be considered 'passive' under provisions enacted in 1986", Laura Saunders at the WSJ, 8 July 2009, link:

This one was a close call, but I agree with the Tax Court.


Clint Athey said...

Does anyone have a citation for this case? The WSJ piece doesn't tell us much. Thanks, Clint Athey
"The Miserly Accountant"

Independent Accountant said...

Garnett v. Commissioner, 132 TC 19, 30 June 2009.