Guidance for Treasury in Drafting Regulations Interpreting Section 469(g)

ABSTRACT Section 469 provides generally that losses from passive activities may offset income from passive activities, but cannot be deducted against nonpassive income. Any excess of passive losses over passive income in a taxable year is suspended and carried forward as a passive loss to subsequent years. Under Section 469(g), a taxpayer's suspended passive losses from an activity are freed up when the taxpayer sells his entire interest in the activity to an unrelated person in a fully taxable transaction. However, if the sale is to a related party, then the suspended losses remain suspended (but remain with the taxpayer) until the activity thereafter is sold in a fully taxable transaction to a party unrelated to the taxpayer. In our analysis, we consider legal, conceptual, and practical concerns affecting transactions governed by Section 469(g) and show that Section 469(g) should be interpreted under a hybrid theory for passthrough entities, rather than under a pure aggregate theory or pure entity theory. Through examples, we provide guidance to Treasury in drafting long-overdue regulations interpreting Section 469(g) for Chapter 1 (income tax) and Chapter 2A (Section 1411) purposes. In addition, we recommend that Congress amend Section 469(g)(1)(B) to require that in order to free up a taxpayer's suspended losses, the acquirer in a subsequent sale of the passive activity interest must be unrelated to the seller in that transaction, rather than to the taxpayer.

Accounting Practices Regarding the Non-Current Assets Held for Sale

Generally the non-current assets, and especially the tangible assets, are held by the entity (as it results from their very definition) in order to be used in the production of goods or for services, to be rented to the thirds or to be used for administrative purposes during several periods. For the time interval that a non-current asset is not classified as being held for sale, its recognition and implicitly its assessment will be done in accordance with the provisions of the applicable International Financial Reporting Standards; after the classification of the respective asset as being held with the intention of subsequent sale there will be applicable the provisions of the contemporary IFRS norm 5 “Non-current assets held for sale and discontinued activities”.

Espresso, Inc.: Analyzing the Impact of Employee Stock Options

This case explores the effects of stock option awards on companies and their employees. We examine how options likely affect employee wealth by considering tax and cash-flow effects of the grant and exercise of the option and of the subsequent sale of stock. We also examine how the company reports stockoption transactions in its financial statements and footnotes and how the options affect the company's tax return. These issues are investigated for both incentive stock options and nonqualified stock options. In addition, the case's setting presents the challenges of balancing employee and corporate objectives when structuring this increasingly common form of compensation.

Transition Toward Slavery: Changing Legal Practice Regarding Indians in Seventeenth-Century São Paulo

A seventeenth-century inhabitant of São Paulo once remarked that Indians were “the most profitable property in this land.” Legally, however, Indians were not property at all, for the crown explicitly prohibited their enslavement. During most of the seventeenth century, the settlers of São Paulo complied with the letter of the law and did not officially give their Indian servants any monetary value, and though they often sold them, the sales were known to be illegal and were not usually recorded in public documents, such as the documents used for this study, inventários, settlements of estates. By the end of the century, however, local judges were openly allowing the monetary appraisal of Indians and their subsequent sale was duly recorded in inventários and other court processes.