Opinion ID: 2994425
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Heading: R.C. regulations in force allow them to use the

Text: income generated from the lease between Jane Connor and the corporation to offset certain investment losses generated by other passive investments in real estate held by Michael Connor. The I.R.C. regulations in force prior to 1993 allowed the Connors to perform this income offset, but the regulations issued in 1993 failed to reenact the exemption that allowed the Connors to do so, and in 1994, the regulations promulgated by the Secretary of the Treasury ended the Connors’ ability to offset this income by characterizing the rental income from the lease as non-passive in contrast with the passive income generated by the Connors’ other investment activities. Thus, the Connors ask us to interpret the I.R.C. regulations governing passive activity income attribution in effect in 1993-1994 to determine whether income generated by a lease like that made by the Connors should be considered passive or non-passive, a determination which depends on whether a taxpayer like Michael Connor can be said to materially participate in the activities of his corporation. As part of the Tax Reform Act of 1986, enacted at 26 U.S.C. sec. 1 et seq., Congress limited the financial incentive for many taxpayers to structure traditional tax shelters. Pursuant to this legislative purpose, the passive activity rules, enacted as I.R.C. sec. 469, disallow the deductibility of certain losses generated by passive activities, except insofar as to offset the gains from other passive activities. See