Rev Proc 2010 13 2010 4 IRB 1 Purpose This revenue procedure requires taxpayers to report to the Internal Revenue Service their groupings and regroupings of activities and the addition of specific activities within their existing groupings of activities for purposes of section 469 of the Internal Revenue Code and 1 469 4 of the Income Tax Regulations On August 4 2008 Notice 2008 64 2008 I R B 31 the Notice was published in the Internal Revenue Bulletin The Notice proposed a disclosure regime for taxpayer groupings under section 469 and solicited comments both on whether the proposal sufficiently balanced the need for disclosure with taxpayer burden and on alternative approaches In response the Service received several comments suggesting ways in which the proposal could be improved This revenue procedure reflects some of the changes suggested by the comments received Specifically the regime proposed in the Notice required taxpayers to make a disclosure whenever there is a disposition of an activity within a chosen grouping this requirement has been removed In addition the Notice did not contain a relief provision for taxpayers that in a given year fail to make the required disclosure Section 4 07 of this revenue procedure contains a relief provision for taxpayers that can meet certain additional criteria to demonstrate their groupings of activities 2 Background 01 Section 469 generally provides that losses from and credits attributable to passive trade or business activities to the extent they exceed respectively income from or the regular tax liability associated with all such passive activities are disallowed for the taxable year and carried forward to the subsequent taxable year subject to certain exceptions 02 Section 469 g 1 A generally provides that if during the taxable year a taxpayer disposes of his entire interest in any passive activity or former passive activity and all gain or loss realized on such disposition is recognized the excess of i any loss from such activity for such taxable year determined after the application of section 469 b over ii any net income or gain for such taxable year from all other passive activities determined after the application of section 469 b shall be treated as a loss which is not from a passive activity 03 Section 1 469 4 sets forth the rules for grouping a taxpayer s trade or business activities and rental activities for purposes of applying the passive activity loss and credit limitation rules of section 469 04 Section 1 469 4 c 1 provides that one or more trade or business activities or rental activities may be treated as a single activity if the activities constitute an appropriate economic unit for the measurement of gain or loss for purposes of section 469 05 Section 1 469 4 c 2 provides guidelines for determining whether activities constitute an appropriate economic unit and therefore may be treated as a single activity Section 1 469 4 d describes limitations on grouping certain activities Section 1 469 4 d 5 provides that a C corporation subject to section 469 an S corporation or a partnership a section 469 entity must group its activities under the rules of 1 469 4 Once a section 469 entity groups its activities a shareholder or partner may group those activities with each other with the activities conducted directly by the shareholder or partner and with activities conducted through other section 469 entities in accordance with the rules of this section The shareholder or partner may not treat activities grouped together by a section 469 entity as separate activities 06 Section 1 469 4 e 1 provides that except as provided in 1 469 4 e 2 and 1 469 11 providing three periods of time all of which are now closed in which a taxpayer could have regrouped its activities without having to establish that the original grouping was clearly inappropriate under 1 469 4 e 2 once a taxpayer has grouped activities under 1 469 4 the taxpayer generally may not regroup those activities in subsequent taxable years Taxpayers must comply with disclosure requirements that the Commissioner may prescribe with respect to both their original groupings and the addition and disposition of specific activities within those existing groupings in subsequent taxable years 07 Section 1 469 4 e 2 provides that if it is determined that a taxpayer s original grouping was clearly inappropriate or a material change in the facts and circumstances has occurred that makes the original grouping clearly inappropriate the taxpayer must regroup the activities and must comply with the disclosure requirements that the Commissioner may prescribe 08 Section 1 469 4 f provides that the Commissioner may regroup a taxpayer s activities if any of the activities resulting from the taxpayer s grouping is not an appropriate economic unit and a principal purpose of the taxpayer s grouping or failure to regroup under paragraph e of 1 469 4 is to circumvent the underlying purposes of section 469 3 Scope This revenue procedure applies to all taxpayers to which the rules in 1 469 4 apply Special rules apply for groupings by partnerships and S corporations and are described in section 4 05 of this revenue procedure This revenue procedure does not apply to the rental real estate activities as defined in 1 4699 b 3 of a taxpayer in a year in which the taxpayer is a qualifying taxpayer as defined in 1 469 9 b 6 if it has made the election provided for in 1 469 9 g 4 Application 01 Disclosure Requirements for Taxpayer Groupings Sections 4 02 through 4 04 of this revenue procedure require taxpayers to report to the Service as part of their annual income tax return certain changes to the taxpayer s groupings that occur during the taxable year Section 4 05 of this revenue procedure provides special rules for groupings by partnerships and S corporations Section 4 06 of this revenue procedure governs the treatment of groupings existing prior to the effective date of this revenue procedure Section 4 07 of this revenue procedure stipulates the consequences for failing to make the disclosures required by sections 4 02 through 4 04 02 Statement Required for New Groupings A taxpayer shall file a written statement with its original income tax return for the first taxable year in which two or more trade or business activities or rental activities are originally grouped as a single activity This statement must identify the names addresses and employer identification numbers if applicable for the trade