Jeff-Ohio wrote:When there’s something newer, that’s more relevant. Your Post #5 gets into a bunch of nonsense that is irrelevant. What’s relevant is when the relevant Senate Report says a net lease is an active trade or business, “for this purpose.”
The courts would disagree with you on a newer Committee Report being given more weight because it is newer. For example, the Fifth Circuit declared that "[a]lthough a committee report written with regard to a subsequent enactment is not legislative history with regard to a previously enacted statute, it is entitled to some consideration as a secondarily authoritative expression of expert opinion" (Bobsee Corporation v. United States, 411 F.2d at 237). The Senate report you favor should be given more weight on items that were newly enacted along with the report. The term "active trade or business" is not something they came up with, so we should give their interpretation of it "some consideration as a secondarily authoritative expression of expert opinion".
Nowhere in the report do they say "a net lease is an active trade or business". They could not have said this because it would not have been a valid interpretation of the previously enacted law, which specifically excluded section 212 activities such as pure net lease rentals. Rather, they said "a business where property is regularly based on a net lease basis is an active trade or business". They are beginning from the standpoint that an activity is a "business", then talking about how passive it is, then stating that the business is still "active" in spite of all of that. When you read that, you assume no business could ever be that passive and still be a business, so they must not have meant "business". But as I've shown, a business can be that passive and still be a business, so your argument doesn't work.
it’s also well-settled that when someone incurs a cost that relates to a business or an investment activity, it should be recovered somehow, some way, as a deduction.
A lack of section 195 amortization doesn't violate this principle; taxpayers can deduct costs under section 165 on disposition of the activity.
When Congress chooses to carve out exceptions like this, do taxpayers, the courts or the IRS have the right to broaden the scope of the exceptions by reason of corollary alone?
It’s not broadening the scope “by corollary” when Congress says that Sec 212 costs should be treated like Sec 162 costs for purposes of Sec 195. It’s leveling the playing field.
Congress wanted these sections in parity, yes. But "the sections are in parity" does not mean "activities described by the sections are treated equivalently". That's the corollary you want. You can't have it in sections 179, 190, or 199A, so why should you get it in section 195? That section started out with a deliberate inequality between the two types of activities, and at no point in any statute, regulation, committee report or court case do we have anyone saying that there is now equality between the activities. That's not what construing sections 162 and 212 in pari materia means.
My argument is that although a net lease by itself may not be a business, King v. Commissioner shows that one can be in a business centered around doing net leases, therefore "business" actually does mean "business" in the phrase "business where property is regularly based on a net lease basis".
It could mean that, but then again, it could mean that if you rent property on a net lease basis, then “for the purpose” of Sec 195, it’s an active trade or business. That seems very appealing, given the intention set forth in the Senate Report: That the expenses at issue in Hoopengarner (who didn’t even have an activity yet) would be subject to Sec 195.
There's no compelling reason to disregard the word "business" in the Committee Report.
Hoopengarner's expenses needed to get pulled in to section 195 because they weren't being capitalized and assigned to his yet-inoperative section 162 business. There was never an issue about whether someone having a "business" or not mattered for amortization purposes, and no one ever said they were trying to fix that aspect of the law.
any activity engaged in for profit and for the production of income before the day on which the active trade or business begins, in anticipation of such activity becoming an active trade or business,
Strictly construed, this sentence absolutely, 100% means Toth should have lost. No question about it. But guess what? Toth won. Rose also won.
Due to the qualification "in anticipation of such activity becoming an active trade or business", even the strictest construction of this language implies that merely becoming an active trade or business later is not enough for capitalization of presumptive 212 expenses under section 195—some threshold of "anticipation" must also be met. Anticipation implies an eye toward the future and not the present. Courts have leaned heavily in favor of taxpayers in applying this distinction, but they didn't create it—it's right there in the statute.
All your argument does is increase controversy, when the amendment was intended to do the opposite. And when the IRS tries to increase controversy, they get shot down at every turn, as the cases reveal.
You propose that section 195 doesn't mean what it says, the word "business" in the 1984 Committee Report doesn't matter, the term "trade or business" in section 195 has a markedly different meaning from what it usually means in the Code, and the intent of the 1980 Congress has been overridden with no obvious evidence that this is so. If we accept your proposals, then we are in a much more uncertain position than we otherwise would be. Uncertainty gives rise to controversy. Using your own logic, we should reject your argument.
You think it makes sense that a normal business deduction is allowed under 162, a normal production of income expense is allowed under Sec 212, a start up cost for a normal business is amortizable under Sec 195, but a start-up cost for a Sec 212 activity isn’t. I’m sorry, but that makes no sense.
It might not seem fair to you, but that result was what Congress explicitly intended for in 1980.
We’re talking about routine, everyday transactions that are easy to handle. Yet, you want to put a unique spin on things, based SOLELY on your interpretation of the statute, to upset the apple cart.
If there's an "apple cart" in the tax prep industry, it must be IRS forms and publications. They say the following:
From Publication 535:
- For costs paid or incurred before October 23, 2004, you can elect to amortize business start-up and organizational costs over an amortization period of 60 months or more. See How To Make the Election, later.
The cost must qualify as one of the following.
A business start-up cost.
An organizational cost for a corporation.
An organizational cost for a partnership.
Business Start-Up Costs
Start-up costs are amounts paid or incurred for (a) creating an active trade or business, or (b) investigating the creation or acquisition of an active trade or business. Start-up costs include amounts paid or incurred in connection with an existing activity engaged in for profit, and for the production of income in anticipation of the activity becoming an active trade or business.
- Start-up and organizational costs.
You can elect to amortize the following costs for setting up your business.
• Business start-up costs (section 195).
• Organizational costs for a corporation (section 248).
• Organizational costs for a partnership (section 709).
In your world, everything about section 195 has a unique spin. In mine, none of it does.