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Activities conducted through

income tax return for the first tax year

original basis reduction of the

partnerships, S corporations, and

in which two or more activities are

property to the extent that the credit

C corporations subject to section

originally grouped into a single

has not been allowed under the

469. Once a partnership or

activity. The statement must provide

passive activity rules. Unallowed

corporation determines its activities

the names, addresses, and employer

PACs that are not used to increase

under these rules, a partner or

identification numbers (EIN), if

the basis of the credit property are

shareholder may use these rules to

applicable, for the activities being

carried forward until they are allowed.

group those activities with:

grouped as a single activity. In

To make the election, complete Form

•

Each other,

addition, the statement must contain

8582-CR, Part VI. No basis

•

Activities conducted directly by the

a declaration that the grouped

adjustment may be elected on a

partner or shareholder, or

activities make up an appropriate

partial disposition of your interest in a

•

Activities conducted through other

economic unit for the measurement of

passive activity.

partnerships and corporations.

gain or loss under the passive activity

Example of How To

rules.

A partner or shareholder may not

Complete Form 8582-CR

treat as separate activities those

Addition to an existing grouping.

activities grouped together by the

For tax years beginning after 2010,

You must file a written statement with

partnership or corporation.

line numbers on the referenced forms

your original income tax return for the

Partial disposition of an activity.

may change. See the form

tax year in which you add a new

You may treat the disposition of

instructions for the referenced forms

activity to an existing group. The

substantially all of an activity as a

on how to report the passive activity

statement must provide the name,

separate activity if you can prove with

credit.

address, and EIN, if applicable, for

reasonable certainty:

the activity that is being added and

In 2010, John Jones purchased an

for the activities in the existing group.

1. The prior year unallowed

interest as a limited partner in

In addition, the statement must

losses, if any, allocable to the part of

Partnership A. Mr. Jones is married

contain a declaration that the

the activity disposed of, and

and files a joint return. During 2010,

activities make up an appropriate

2. The net income or loss for the

the partnership placed in service a

economic unit for the measurement of

year of disposition allocable to the

residential rental building that

gain or loss under the passive activity

part of the activity disposed of.

qualified for the low-income housing

rules.

credit.

Disclosure Requirement

•

Regrouping. You must file a written

Mr. Jones received a Schedule K-1

(Form 1065) from the partnership.

For tax years beginning after January

statement with your original income

tax return for the tax year in which

The low-income housing credit

24, 2010, the following disclosure

($12,000) is shown on Schedule K-1,

requirements for groupings apply.

you regroup the activities. The

box 15 with code D.

You are required to report certain

statement must provide the names,

•

Mr. Jones’ net passive income for

changes to your groupings that occur

addresses, and EINs, if applicable,

2010 is zero.

during the tax year to the IRS. If you

for the activities that are being

•

regrouped. If two or more activities

Mr. Jones will need the following

fail to report these changes, each

forms to figure the low-income

trade or business activity or rental

are being regrouped into a single

housing credit.

activity will be treated as a separate

activity, the statement must contain a

activity. You will be considered to

declaration that the regrouped

1. Form 8586, Low-Income

have made a timely disclosure if you

activities make up an appropriate

Housing Credit (not illustrated).

filed all affected income tax returns

economic unit for the measurement of

2. Form 8582-CR, Passive

consistent with the claimed grouping

gain or loss under the passive activity

Activity Credit Limitations.

and make the required disclosure on

rules. In addition, the statement must

Step 1. Mr. Jones follows the

the income tax return for the year in

contain an explanation of the material

instructions for code D on Schedule

which you first discovered the failure

change in the facts and

K-1, box 15, and enters the $12,000

to disclose. If the IRS discovered the

circumstances that made the original

low-income housing credit on line 11

failure to disclose, you must have

grouping clearly inappropriate.

of Form 8586.

reasonable cause for not making the

Dispositions

required disclosure. For more

Step 2. Line 15 of Form 8586 asks

information on disclosure

Unallowed PACs, unlike unallowed

for the passive activity low-income

requirements, see Revenue

passive activity losses, are not

housing credit for 2010. The amount

Procedure 2010-13 available at

www.

allowed when you dispose of your

is figured on Form 8582-CR and the

irs.gov/irb/2010-04_IRB/ar15.html.

interest in an activity. However, you

worksheets. Worksheet 3 of Form

New grouping. You must file a

may elect to increase the basis of the

8582-CR is used for the post-1989

written statement with your original

credit property by the amount of the

low-income housing credits.

Worksheet 3 for Lines 3a and 3b

(keep for your records)

Current Year

Prior Year

Total Credits

Credits

Unallowed Credits

From

Name of Activity

Form

(a) Credit line 3a

(b) Credit line 3b

Partnership A

8586

12,000

Total. Enter on lines 3a and 3b of Form 8582-CR

12,000

-5-

Instructions for Form 8582-CR (2010)

Instructions For Form 8582-Cr - Passive Activity Credit Limitations - Internal Revenue Service - Page 5

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