Instructions For Form 8582 Draft - 2011 (Page 5 of 13) in pdf

Grouping of Activities

2. An activity involving the rental of

make up an appropriate economic unit

real property with an activity involving

for the measurement of gain or loss

Generally, one or more trade or

the rental of personal property (except

under the passive activity rules.

business activities or rental activities

personal property provided in

may be treated as a single activity if the

Addition to an existing grouping.

connection with the real property or vice

activities make up an appropriate

You must file a written statement with

versa).

economic unit for the measurement of

your original income tax return for the

3. Any activity with another activity

gain or loss under the passive activity

tax year in which you add a new activity

in a different type of business and in

rules.

to an existing group. The statement

which you hold an interest as a limited

must provide the name, address, and

Whether activities make up an

partner or as a limited entrepreneur (as

EIN, if applicable, for the activity that is

appropriate economic unit depends on

defined in section 464(e)(2)) if that

being added and for the activities in the

all the relevant facts and

other activity engages in holding,

existing group. In addition, the

circumstances. The factors given the

producing, or distributing motion picture

statement must contain a declaration

greatest weight in determining whether

films or videotapes; farming; leasing

that the activities make up an

activities make up an appropriate

section 1245 property; or exploring for

appropriate economic unit for the

economic unit are:

or exploiting oil and gas resources or

measurement of gain or loss under the

geothermal deposits.

1. Similarities and differences in

passive activity rules.

types of trades or businesses,

Activities conducted through

2. The extent of common control,

Regrouping. You must file a written

partnerships, S corporations, and C

3. The extent of common

statement with your original income tax

corporations subject to section 469.

ownership,

return for the tax year in which you

Once a partnership or corporation

4. Geographical location, and

regroup the activities. The statement

determines its activities under these

5. Interdependencies between or

must provide the names, addresses,

rules, a partner or shareholder may use

among the activities.

and EINs, if applicable, for the activities

these rules to group those activities

that are being regrouped. If two or more

with:

Example. You have a significant

activities are being regrouped into a

•

Each other,

ownership interest in a bakery and a

single activity, the statement must

•

Activities conducted directly by the

movie theater in Baltimore and in a

contain a declaration that the

bakery and a movie theater in

partner or shareholder, or

regrouped activities make up an

•

Philadelphia. Depending on all the

Activities conducted through other

appropriate economic unit for the

relevant facts and circumstances, there

partnerships and corporations.

measurement of gain or loss under the

may be more than one reasonable

passive activity rules. In addition, the

A partner or shareholder may not

method for grouping your activities. For

statement must contain an explanation

treat as separate activities those

instance, the following groupings may

of the material change in the facts and

activities grouped together by the

or may not be permissible:

circumstances that made the original

partnership or corporation.

•

A single activity,

grouping clearly inappropriate.

•

A movie theater activity and a bakery

Disclosure Requirement

activity,

Passive Activity Income

•

A Baltimore activity and a

For tax years beginning after January

Philadelphia activity, or

24, 2010, the following disclosure

and Deductions

•

Four separate activities.

requirements for groupings apply. You

Take into account only passive activity

are required to report certain changes

Once you choose a grouping under

income and passive activity deductions

to your groupings that occur during the

these rules, you must continue using

to figure your net income or net loss

tax year to the IRS. If you fail to report

that grouping in later tax years unless a

from all passive activities or any

these changes, each trade or business

material change in the facts and

passive activity.

activity or rental activity will be treated

circumstances makes it clearly

as a separate activity. You will be

inappropriate.

If your passive activity is reported on

considered to have made a timely

Schedule C, C-EZ, E, or F, and the

The IRS may regroup your activities

disclosure if you filed all affected

activity has no prior year unallowed

if your grouping fails to reflect one or

income tax returns consistent with the

losses or any gain or loss from the

more appropriate economic units and

claimed grouping and make the

disposition of assets or an interest in

one of the primary purposes of your

required disclosure on the income tax

the activity, take into account only the

grouping is to avoid the passive activity

return for the year in which you first

passive activity income and passive

limitations.

discovered the failure to disclose. If the

activity deductions from the activity to

IRS discovered the failure to disclose,

Limitation on grouping certain

figure the amount to enter on Form

you must have reasonable cause for

activities. The following activities may

8582 and the worksheets.

not making the required disclosure. For

not be grouped together.

more information on disclosure

1. A rental activity with a trade or

If you own an interest in a passive

requirements, see Revenue Procedure

business activity unless the activities

activity through a partnership or an

2010-13 available at

being grouped together make up an

S corporation, the partnership or

2010-4_IRB/ar15.html.

appropriate economic unit and:

S corporation will generally provide you

a. The rental activity is insubstantial

New grouping. You must file a written

with the net income or net loss from the

relative to the trade or business activity

statement with your original income tax

passive activity. If, however, the

or vice versa, or

return for the first tax year in which two

partnership or S corporation must state

b. Each owner of the trade or

or more activities are originally grouped

an item of gross income or deduction

business activity has the same

into a single activity. The statement

separately to you, and the gross

proportionate ownership interest in the

must provide the names, addresses,

income or deduction is passive activity

rental activity. If so, the portion of the

and employer identification numbers

gross income or a passive activity

rental activity involving the rental of

(EINs), if applicable, for the activities

deduction (respectively), include that

property used in the trade or business

being grouped as a single activity. In

amount in the net income or net loss

activity may be grouped with the trade

addition, the statement must contain a

entered on Form 8582 and the

or business activity.

declaration that the grouped activities

worksheets.

-5-

Instructions for Form 8582 (2011)

Instructions For Form 8582 Draft - 2011 Page 5

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