IRS Unveils Rules on Treatment of Entities as Limited Partnership Interests

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IRS unveils proposed rules (REG-109369-10) setting out new circumstances in which an entity would be treated as an interest in a limited partnership under tax code Section 469. The rules address how to determine whether a taxpayer materially participates in an activity for purposes of that code section, which limits the ability of certain taxpayers to deduct losses from passive activities. IRS says that under the proposed rules, an interest in an entity will be treated as an interest in a limited partnership under tax code Section 469(h)(2) if the entity is classified as a partnership, and the holder of the interest does not have rights to manage the entity at all times during the entity's taxable year.