Magazine article The CPA Journal

Passive Investment Income of S Corporations

Magazine article The CPA Journal

Passive Investment Income of S Corporations

Article excerpt

In two recent private letter rulings the IRS has considered when income from leasing will escape passive investment income. In LTR 9134012 it examined a situation where the taxpayer owned and managed shopping centers. In connection with the leasing of space to tenants, the taxpayer provided numerous services for the tenants. It published a shopping guide, distributed almost twice a month to at least 45,000 homes in the area, in which tenants of the shopping centers could advertise. The taxpayer also retained a professional to assist tenants in their advertising activities and provided employees to carry out promotional activities, such as car shows and sidewalk sales.

Management personnel were provided by the taxpayer to assist with administrative and accounting functions needed in the operation of a merchants' association. Large community rooms were provided at each shopping center for the use of tenants for business meetings, and storage space and the use of common areas for special promotions were also provided.

Among other services, taxpayer provided financial performance advice to tenants free of charge, protested real property assessments on behalf of tenants, and helped tenants find either buyers for their businesses or qualified sublessees. …

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