Sat, 7 March 2009  The IRS has shown recent interest in disputing whether real estate agents meet the requirements to be treated as real estate professionals that can use the rules of §409(c)(7) to treat rental real estate under the standard passive activity rules rather than having such items automatically treated as passive. The IRS position is that since the law refers to a "brokerage" trade or business and such individuals generally are not licensed as real estate brokers they cannot qualify.In the case of Agarwal v. Commissioner, TC Summary 2009-29, the Tax Court did not agree with the IRS on that matter, instead allowing the taxpayer, who was a real estate agent who worked as an independent contractor under contract with a licensed brokerage firm, to qualify for §409(c)(7) treatment. The podcast also discusses a 2007 case where it was the IRS who was (successfully) arguing that you can't use state law licensing definitions when the issue was whether an bookkeeping and tax preparation firm that was not licensed as a CPA firm was a personal service corporation. In both of these cases, the Tax Court found that under the IRC we would look to the commonly understood definition of the terms, and that state licensing definitions did not control. Materials for this podcast can be found at http://www.edzollars.com/2009-03-09_RealEstate.pdf . The podcast is sponsored by Leimberg Information Services, located at http://www.leimbergservices.com . Comments[3] |
Actually, DOMA provides a definition, so the matter isn't quite the same. Common usage is used when no definition is provided in the statute for the term. In this case, I think the court really had trouble with the IRS position because they believed that state licensing agencies create definitions that are specialized for the regulatory purpose, which is different from what Congress was looking for here.
DOMA's validity would turn on the basic question of Congress's right to create such a provision in federal law.
DOMA's validity would turn on the basic question of Congress's right to create such a provision in federal law.
I was thinking more about the "common law marriage" concept, rather than the DOMA. Many people in our society are perceived or accepted as being "married" even though TECHNICALLY they aren't. The Agarwal case could be viewed as sweeping away the technicalities as far as the IRC is concerned and therefore it would appear that common law marriage in the tax context has received a giant boost. Ditto for the possibility of being "single" even though technically you aren't divorced. And ditto for any other area where state law has previously been viewed as controlling.
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