Does Section 195 Apply to Section 212 Activities?

Technical topics regarding tax preparation.
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yours requires more logical leaps, is harder to support from a legal standpoint, conflicts with the plain language of the statute, and is outside the scope of the purpose for the amendment as stated in the Senate Report itself.

First off, there really are no leaps. It is a conclusion based on perspective, pursuant to what was happening at the time and what had happened. This has thoroughly been explained. You simply choose to reject the underlying currents.

Second of all, it doesn’t conflict with the plain language of the statute. It simply adds in another category of taxpayers. This has also been thoroughly explained.

Third of all, while it might be outside of the purpose of the anti-Hoopengarner amendment, it was well within the purpose of capturing other stuff that the anti-Hoopengarner amendment didn’t catch. Namely, Sec 212 activities that always intended to be Sec 212 activities.

There's no plain-language case for the last three sentences of the Committee Report doing anything other than discussing the term "active".

You say discuss, I say expand. This has also been thoroughly been explained.

All you've got is an argument about what the 1984 Report should say.

Not really. What I have is what the 1984 Report actually does say, but with perspective and context (as opposing to just reading the words, as you have done).

You can reference whoever you want and say whatever you want about your source.

Thank you for your approval.

It would be an idea different from what yours is.

Hopefully not, with respect to Sec 195, as per the 1984 Senate Report, which described a net lease as a “business” for that purpose.

This asks more of the practitioner and of the law.

Then why do the “practitioner” sources I cited agreed with me? The simple thing is to say that Sec 195 applies across the board.

By "all the little pieces", I don't see what you could mean besides the final two sentences of the 1984 Senate Report and the context they were written in

And one little piece about context is why those 2 sentences show up in the first place…if the 1984 statutory amendment adequately accomplished what Congress set out to do, the Senate Report would have stopped at, “The addition of this provision was intended to over-ride Hoopengarner.”
 

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Jeff-Ohio wrote:First off, there really are no leaps. It is a conclusion based on perspective

Ok, lets go with your terminology. Your interpretation requires more "conclusions based on perspective" than mine does.

Jeff-Ohio wrote:You simply choose to reject the underlying currents.

The same blatantly false claim for the fourth time. I'm not turning a blind eye to anything—I know this was on Congress' agenda. But to say that Congress generally wanted something to happen at the time doesn't necessarily mean that they accomplished it in any given enactment that loosely relates to those aims. I gave another plausible explanation for their aims in post #5. While your interpretation deserves consideration, so does mine. In deciding between the two, we must turn back to the primary sources themselves to see which fits better with them.

Jeff-Ohio wrote:it doesn’t conflict with the plain language of the statute. It simply adds in another category of taxpayers.

Section 195 itself as well as both Senate Reports and the 2011 Blue Book say that amortization of start-up costs is for costs incurred in a trade or business. The very definition of a section 212 activity derives by exclusion from the category "trade or business". When you say you want to go ahead and consider a trade or business to include this thing that specifically isn't a trade or business, you're in conflict with the plain meaning of the words you're using.

Imagine Congress writes a statute specifically targeting females to lend them a hand, then makes an amendment clarifying that males who undergo a sex change are considered females for purposes of their statute. At the same time, they express a general desire for a more inclusive definition of the term "female". Now you come in and argue that in this case, the term "female" must include the meaning "male" because if it did, that would indirectly assist in the general purpose of discouraging male-centric views. That argument just doesn't work without some additional, fairly convincing evidence.

If you argue in the alternative that although a 212 activity isn't an "active trade or business", it's still included in the term "start-up expenditures", you're expanding by corollary again. You're saying the law itself has additional language that isn't even there.

Third of all, while it might be outside of the purpose of the anti-Hoopengarner amendment, it was well within the purpose of capturing other stuff that the anti-Hoopengarner amendment didn’t catch. Namely, Sec 212 activities that always intended to be Sec 212 activities.

Yes, it's within that purpose. My point is, that purpose was not stated in the Senate Report itself.

You say discuss, I say expand. This has also been thoroughly been explained.

My point is that you need to bring in some outside context to show that there's any expansion going on at all.

(as opposing to just reading the words, as you have done).

Here's that blatantly false claim again for the fifth time.

the 1984 Senate Report, which described a net lease as a “business” for that purpose.

It did not. It described "a business where property is regularly based on a net lease basis" as "an active trade or business". The meaning of this sentence isn't that "net leases are businesses". It's that "a business, even when it focuses on net leases, is active".

Then why do the “practitioner” sources I cited agreed with me?

I disputed that the Tax Adviser article actually agrees with you. Hamill agrees with you because he's bought in to the less obvious, more complex version of things that asks more of him. I don't know why he did this. If we can find out why, that would be a good point to add to the discussion. If not, you're left with saying he bought in so it must be true, and that's an argument from authority.

if the 1984 statutory amendment adequately accomplished what Congress set out to do, the Senate Report would have stopped at, “The addition of this provision was intended to over-ride Hoopengarner.”

I agree with this. We know they were up to something more; the question is what it was specifically. You and I both have plausible, conflicting interpretations about this that should be evaluated by turning back to the primary sources.
 

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Your interpretation requires more "conclusions based on perspective" than mine does.

That’s right. Based on an understanding of what was happening at the time and what had happened, with the Hoopengarner case…and what might happen with a guy who says, “I have a 212 activty that will always be a 212 activity.”

The same blatantly false claim for the fourth time


It’s not false and it’s not blatantly false. You said yourself:

You and I both have plausible, conflicting interpretations about this that should be resolved by turning back to the primary sources.


You want to turn back to the primary sources, which means you turn away from perspective.

Section 195 itself as well as both Senate Reports and the 2011 Blue Book say that amortization of start-up costs is for costs incurred in a trade or business.


I would submit that the Blue Book doesn’t precisely capture (c)(1)(B). And I would further submit that the second Senate Report effectively re-defined “active trade or business” to something that “isn’t that” with respect to a layman’s definition.

Imagine Congress writes a statute specifically targeting females to lend them a hand, then makes an amendment clarifying that males who undergo a sex change are considered females for purposes of their statute.


Or imagine that Congress defines females in an initial committee report, but a later committee report says that the term “females” will also include males.

If you argue in the alternative that although a 212 activity isn't an "active trade or business", it's still included in the term "start-up expenditures", you're expanding by corollary again


I’m not arguing in the alternative.

It did not.

It did. And one of the little pieces you’re failing to grasp is that if the 1984 Senate Report writers thought that the anti-Hoopengarner statute addition would adequately capture everything they wanted captured, there would have been no commentary about “passive businesses” and “net leases.” Those would have already been captured.

I disputed that the Tax Adviser article actually agrees with you.


Then let’s just replace it with what the judge said in Rose, which was:

Section 195 applies to both section 162 activities and section 212 activities.


It can’t get any simpler than that, despite your belief that your theory is more simpler.

You and I both have plausible, conflicting interpretations about this that should be resolved by turning back to the primary sources.


That’s where you’re off base. The 1984 Senate Report was a clear-cut attempt to legislate via committee report. The real question is if it will have that effect or not.

Don’t get me wrong…I don’t necessarily feel that Congress intended to throw non-rental, Sec 212 activities into Sec 195. Quite frankly, the 1984 Senate Report writers lost sight of the forest for the trees. But their high degree of concern for those tax shelters that were 212 activities and would always be, caused an expansion of the statute such that we can now defensibly, comfortably and broadly say - just like Coddington did, just like Hamill did, just like the Tax Adviser author did and just like the Rose judge did: Section 195 applies to both section 162 activities and section 212 activities.

That is the present state of affairs with this issue. If and when you ever find a case to the contrary, just let us know. Until then, you’re arguments remain purely academic and entirely useless to the practitioner.
 

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Jeff-Ohio wrote:
The same blatantly false claim for the fourth time


It’s not false and it’s not blatantly false. You said yourself:

You and I both have plausible, conflicting interpretations about this that should be resolved by turning back to the primary sources.


You want to turn back to the primary sources, which means you turn away from perspective.

It's blatantly false. You say I lack perspective, but I was narrating perspective before you ever made your first post in this thread.

Your perspective focuses on a different trend than mine. Both are valid observations. How are we to evaluate them as they apply to the section 195 amendment? I say we need to look at the primary sources. You (apparently) see that as a sign of weakness. You'd rather stay firmly grounded in your perspective and ignore what the sources in front of us say. It reminds me of religious faith.

Is faith abhorrent? Certainly not. Does it support rational arguments? No.

I would submit that the Blue Book doesn’t precisely capture (c)(1)(B).

Every aspect of that part of the law is reflected in some part of the sentence I quoted. The only way to deny this would be to assert, as you do, that "active trade or business" is a completely novel and counter-intuitive thing that carries hidden meanings. In that case, the only ways to precisely transfer the meaning would be to either 1) transplant the words "active trade or business" in place of the phrases "trade or business" and "business", or 2) actually explain what the hell is (allegedly) going on.

But the drafters of the Blue Book didn't do either of those things. Instead, they captured the meaning of "active" using the word "began". They clearly don't have the deep perspective and behind-the-scenes theories that you do, because to them, "active" simply means that something is currently operating, and "trade or business" simply means "trade or business".

And I would further submit that the second Senate Report effectively re-defined “active trade or business” to something that “isn’t that” with respect to a layman’s definition.

This appears to be your central claim, the thing we've been arguing about this whole time. That means you can't use it to support other claims within the same argument.

Or imagine that Congress defines females in an initial committee report, but a later committee report says that the term “females” will also include males.

I've done as you asked and I don't think the analogy fits our facts. Congress didn't say that one term means the other. You are inferring that this was their intention.

It did not.

It did.

See the above. Inferring the intent is different from reading the actual words. No part of the 1984 Senate Report actually describes a net lease as a business. Quite the opposite—it offers an example of a business that was engaged in frequent net leasing. Your argument is that "business" must therefore not mean "business", but something broader that includes things that aren't businesses. You have no basis for this argument outside of your "perspective".

And one of the little pieces you’re failing to grasp is that if the 1984 Senate Report writers thought that the anti-Hoopengarner statute addition would adequately capture everything they wanted captured, there would have been no commentary about “passive businesses” and “net leases.” Those would have already been captured.

You already said this in #41, and I already responded in #42 as follows:

    I agree with this. We know they were up to something more; the question is what it was specifically. You and I both have plausible, conflicting interpretations about this that should be evaluated by turning back to the primary sources.
I disputed that the Tax Adviser article actually agrees with you.


Then let’s just replace it with what the judge said in Rose, which was:

Section 195 applies to both section 162 activities and section 212 activities.


It can’t get any simpler than that, despite your belief that your theory is more simpler.

I disputed that this quote agrees with you in the same breath that I disputed the Tax Adviser quote's meaning. This was back in post #19. In that post, I actually focused more on the Rose quote and what it would mean if applied specifically to the two cases that it cites in support: Hardy and Hoopengarner. Neither supporting case held that section 212 pre-activity commencement expenses are capitalized and deducted under sections 195(a) and 195(b)(1). As we've discussed, the case law is fully silent on that point.

The conclusion to your post sounds nice, but it draws together unfounded claims, restates mere arguments from authority, and then accuses my arguments of the very fault that so plagues yours: a lack of support from the evidence.
 

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The only way to deny this would be to assert, as you do, that "active trade or business" is a completely novel and counter-intuitive thing that carries hidden meanings.

Yeah, completely hidden, like when the ’84 Report says active includes passive. Or like when the “significant furnishing of services” in the ’80 Report is muddled down to “regularly” in the ’84 Report (not even regularly and continuously). Or like when the insertion of a net lease takes place within the ’84 Report (whereas you had things like apartment complexes and shopping centers referenced in the ’80 Report). Totally hidden.

I disputed that this quote agrees with you in the same breath as I disputed the Tax Adviser article's meaning.


I know, I know. You dispute everything, including conclusions drawn by a Tax Court judge in a very recent case. Again, once you have “evidence” to support your theory, such as a case, just forward it along. Until then, it seems that the legal and tax practitioner communities will retain the highly simple and non-controversial status quo.
 

#46
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You continue to misrepresent the 1984 committee report. It doesn't say "active includes passive" or anything like that. It says an active trade or business may include "a trade or business that is in many respects passive". References to "regularly" but not "continuously" and to net leases illustrate the notion of a "passive trade or business", but they don't transform the term "trade or business" into anything else. All you have to support that transformation is your "perspective". So yes, if the term has transformed, its new meanings are now totally hidden, as you say.

Your evidence is two sentences at the end of the 1984 Committee Report, the quotes from the Tax Adviser and Rose, the support of James Hamill and Brian Coddington, and "perspective".

Of these sources, the only ones that actually say that the term "active trade or business" includes a section 212 activity are Coddington and Hamill. Because these two sources can't dictate law, you have to fall back on the reasoning and evidence that they provide, not their words alone. Hamill gives you nothing. Coddington gives you most of what we've already been discussing. The Tax Adviser and Rose quotes are extremely brief summaries of section 195(c) and the rulings in Hardy and Toth. To understand what they mean, we have to look at the law and at those two cases. We find that the issue of the definition of an "active trade or business" was not addressed at all, even in passing, in any of those three sources. They also don't address 212 activities that were always intended to be 212 activities.

The only legally authoritative sources we have that address the issue of the definition of an "active trade or business" within section 195 are the 1980 Committee Report, the 1984 Committee Report, and the 2011 Blue Book. The 1980 report explicitly says that 212 activities are excluded. The Blue Book says "start-up expenditures" refer to trade or business expenses that would be deductible if the business had begun. The 1984 Committee Report says that it intends "that the definition of start-up expenditures be generally the same as under present law" and then says that an "active trade or business" can be "in many respects passive".

Your argument is that we should toss out the 1980 Committee Report, ignore the Blue Book, and interpret the phrase "in many respects passive" to mean "a section 212 activity". Why? Because of your "perspective".

When I question your perspective, you mount an unyielding defense.

You claim your perspective is in the majority. You haven't shown this to be true, and it wouldn't mean anything even if it were.

You claim that at least you have perspective, that's something I refuse to adopt. But this is your blatantly false claim which is contradicted by the perspective I provided in post #5. Even if I didn't have that perspective, so what? Mere perspective doesn't transform language. Legislating by Committee Report is possible, but it requires that words to the desired effect actually be written.

So in the end, you haven't really given us anything besides an unfounded opinion. But you rest your case by claiming that your unfounded opinion is in the majority, and thus no one will believe me until I provide some evidence. You shift the burden of proof.

If any of my arguments have failed to ground themselves on the evidence right in front of us, that's because I'm spending the majority of my time debunking your unfounded claims. My evidence is there in the legislative history, and the burden of proof is on the one that wants to argue that "trade or business" means something that it hasn't meant since the Higgins case was decided in 1941.
 

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It doesn't say "active includes passive" or anything like that. It says an active trade or business may include "a trade or business that is in many respects passive".


As has been mentioned, you’re focus on the word “business,” and the misaligned meaning you attribute to it, is misplaced, in light of what the ’84 Report writers were trying to accomplish (i.e. plug the “212 activity which will always be a 212 activity” hole). Contemporaneous writings confirm this. It’s not my fault your research is deficient.

And you haven’t even noted this tid-bit in the 1980 Report:

…to constitute an active business (within the meaning of Code sec. 162)

Interesting. The problem is that Section 162 doesn’t speak to an “active trade or business.” But if that is the benchmark – that Section 162 only covers an active trade or business - I’d say that when the 1984 Report flipped things to “a trade or business that is in many respects passive,” that would push such an activity outside of the 1980 benchmark definition, with the result that such a passive “business” wouldn’t fall “within the meaning of Code sec. 162.” And lo and behold, the very next sentence in the 1984 report talks about a net lease. The 1984 Report writers were just addressing the actual words written by the 1980 Report writers.

When I question your perspective, you mount an unyielding defense.


It’s not just my perspective, quite clearly.
 

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Jeff-Ohio wrote:you’re focus on the word “business,” and the misaligned meaning you attribute to it, is misplaced, in light of what the ’84 Report writers were trying to accomplish (i.e. plug the “212 activity which will always be a 212 activity” hole). Contemporaneous writings confirm this. It’s not my fault your research is deficient.

Don't shift the burden of proof. Until you can produce these contemporaneous writings, all you'll have to prove that's what they were trying to do is your "perspective".

…to constitute an active business (within the meaning of Code sec. 162)

Interesting. The problem is that Section 162 doesn’t speak to an “active trade or business.”

Unless you assume the term has the hidden meaning that you ascribe to it, section 162 absolutely speaks to it. Section 162 talks about "all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business". The "carrying on" requirement is exactly what this whole fuss has been about. It's one of the two primary justifications for the pre-opening expense doctrine, the other being distortion of income. The very purpose of section 195 is to address the transition from a business that is not being carried on to one that is being carried on.

There are many ways to express this idea. Section 195 uses the word "active". The 2011 Blue Book expresses the idea using the word "began". Case law is littered with various other ways of discussing it. Nothing in the primary sources requires us to read any further into the word "active" than this.

with the result that such a passive “business” wouldn’t fall “within the meaning of Code sec. 162.” And lo and behold, the very next sentence in the 1984 report talks about a net lease.

But nothing the 1984 report says conflicts with the notion of a section 162 business. Net leases do fall within the concept of a "trade or business". See Lewenhaupt v. Commissioner (20 T.C. 151), CRSO v. Commissoner (128 T.C. 12), and King v. Commissioner (458 F.2d 245). Because a net lease is quite passive but can still be a trade or business, it is a perfect example of how a trade or business can still be considered "active" even with little to no effort on the part of the taxpayer. In light of section 469, we might now characterize the trade or business as one with no material participation from the taxpayer. But these activities don't suddenly fail to count as trades or businesses for that reason alone.

The Committee Report illustrates that "active" is to be taken in the sense of opposition to "inactive", and not in the sense of opposition to "passive". Thus the word "active" is clarified, and there's no reason to read any further into it except for "perspective" or whatever contemporaneous writings you can come up with, if they exist.

It’s not just my perspective, quite clearly.

It's clear you believe there are contemporaneous writings that will confirm your perspective. What's not clear, so far, is whether those writings do in fact exist. The burden of proof is on you to produce them because of the radical shift in the meaning of the term "trade or business" that you are proposing.
 

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Section 195 uses the word "active".


No kidding…but Section 162 doesn’t. Seems that if anyone is upsetting the definition of “trade or business,” it was the 1980 Report writers…

See Lewenhaupt v. Commissioner (20 T.C. 151), CRSO v. Commissoner (128 T.C. 12), and King v. Commissioner (458 F.2d 245).


And why don’t you see all the guidance that says otherwise, including the PLR that came out in 1983…after ’80 and before ’84.

In light of section 469, we might now characterize the trade or business as one lacking in material participation from the taxpayer. But these activities don't suddenly fail to count as trades or businesses for that reason alone.


Well, they very well might.

The burden of proof is on you


It’s not a heavy burden. All I need to point to is the blunt statement made by the judge in Rose, which comports with the status quo. And in the Charlton case referenced in Rose, there was no discussion of things like “anticipations” and whether or not the cabin rentals would be a 212 activity or a 162 activity. Rather, the judge just said the pre-opening costs were start-up costs. Courts are looking to see when something starts, and when it starts, everything incurred before then are simply labeled “start-up costs.”

And, of course, I’d also point to everything else I wrote in this thread, including Post #30, about that shake-up that Hoopengarner caused. While you might find it elusive, I’m pretty sure a judge wouldn’t, given the language they use in quickly dispatching with these cases.
 

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Jeff-Ohio wrote:
Section 195 uses the word "active".


No kidding…but Section 162 doesn’t. Seems that if anyone is upsetting the definition of “trade or business,” it was the 1980 Report writers…

Section 162 says "carrying on". Section 195 says "active". The 2011 Blue Book says "began". They all mean things have got to be up and running.

Sections 355 and 179 require "active conduct of a trade or business". In these cases, "active" means something different. There is a requirement for meaningful participation of the taxpayer in management and/or operations.

The PLR you referenced (PLR 8350008) requires "active conduct of a trade or business" for section 1231 to apply. My best guess is that they wanted to emphasize the requirement for substantial activity to accompany a mere net lease for them to accept that it's a business.

It makes sense for the 1984 Committee Report drafters to want to clarify what is meant by active between all these different possibilities, and they did so. They steered us closer to the first meaning, and the 2011 Blue Book confirmed that meaning.

And why don’t you see all the guidance that says otherwise, including the PLR that came out in 1983…after ’80 and before ’84.

Because I'm not trying to prove that net leases are always trades or businesses. I'm only trying to show that they sometimes are in order to discredit your argument that the phrase "a business where property is regularly based on a net lease basis" is talking about anything other than a business.

In light of section 469, we might now characterize the trade or business as one lacking in material participation from the taxpayer. But these activities don't suddenly fail to count as trades or businesses for that reason alone.


Well, they very well might.

Yes, of course. Just like a net lease might not be a business. All I'm trying to show is that these aren't sure things.

All I need to point to is the blunt statement made by the judge in Rose, which comports with the status quo.

A statement whose meaning rests on the cases it cites, which don't support your point. A status quo which you haven't shown to exist.

And in the Charlton case referenced in Rose, there was no discussion of things like “anticipations” and whether or not the cabin rentals would be a 212 activity or a 162 activity.

Why no controversy as to the controlling section? Because the expenses would be capitalized regardless under the pre-opening expense doctrine. The amortization wouldn't have started until 1998, and that year wasn't at issue. Why no mention of the anticipation concept or something resembling it? Because there was not a separate ongoing activity at the time.

And, of course, I’d also point to everything else I wrote in this thread, including Post #30, about that shake-up that Hoopengarner caused.

That would be you pointing to your "perspective" and your special knowledge about what Congress was trying to accomplish with the last two sentences of the 1984 Report again.
 

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Because I'm not trying to prove that net leases are always trades or businesses. I'm only trying to show that they sometimes are in order to discredit your argument that the phrase "a business where property is regularly based on a net lease basis" is talking about anything other than a business.


Yet you say that we go to Sec 162 to find the meaning of “active trade or business.”

And if the phrase “…a business where property is regularly [rented] based on a net lease basis” isn’t talking anything other than a business, then the taxpayers it’s not talking about (212 taxpayers, always intending to be 212) fall through the cracks. They’d get an immediate deduction for their pre-opening costs as per Post #28…despite what you say.

My best guess is that they wanted to emphasize the requirement for substantial activity to accompany a mere net lease for them to accept that it's a business.


And my best guess is that the net lease described in the PLR, which was accorded non-trade or business classification, was very much akin to the passive net lease mentioned in the 1984 Report. I have a PLR from 1983, you cite a case from the 1950’s that involved a number of properties…

A status quo which you haven't shown to exist.


I think it’s your position that is found not to exist. If it did, you’d be able to point to it in a case, but you can’t. Instead, what the cases show is that once something is started, then gentlemen, start your amortization…

And it’s no wonder that rental activities are covered by the passive rules…whether or not they’re trades or businesses.
 

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Jeff-Ohio wrote:Yet you say that we go to Sec 162 to find the meaning of “active trade or business.”

Where is the inconsistency between this and arguing that the term "business" connotes section 162 as well? A "business" is a "trade or business". "Active" is when something is "carried on". There is a clear parallel that can be drawn. The parallel is not crucial to my position, but it does provide a more plausible alternative to your contrivances that allows everything to make sense.

They’d get an immediate deduction for their pre-opening costs as per Post #28…despite what you say.

I provided my counter-argument to this in post #29. Your response was to set up a straw man by claiming my argument ignored the greater context, then knock it down with a dramatic narrative of the struggles of Congress that was grounded in nothing at all, save your "perspective".

You then briefly addressed my actual claim by saying longstanding principles don't matter because Congress "expanded Sec 195 to cover Sec 212 activities via the Senate Report". But guess what...that's your central claim. You actually have to support it before you can use it to do anything else. But no, you'd rather start with your claim as an assumption, use it to brush aside the pre-existence of capitalization principles, and then proceed to argue that there's a gap in the law as a result. You then want to point to this contrived gap as support for the claim you started out with.

Misdirection, straw men, arguments from dramatic narrative, and circular reasoning. That's all you gave us to defend the claim you made in #28.

My best guess is that they wanted to emphasize the requirement for substantial activity to accompany a mere net lease for them to accept that it's a business.


And my best guess is that the net lease described in the PLR, which was accorded non-trade or business classification, was very much akin to the passive net lease mentioned in the 1984 Report. I have a PLR from 1983, you cite a case from the 1950’s that involved a number of properties…

My point was there are multiple different versions of "active" throughout the Code and IRS literature.

I think it’s your position that is found not to exist. If it did, you’d be able to point to it in a case, but you can’t. Instead, what the cases show is that once something is started, then gentlemen, start your amortization…

Show me one example of the pre-opening costs of a section 212 activity held to be amortizable under section 195 by any court with proper jurisdiction or in any document binding on the IRS and I'll concede my entire argument.

Until then, what we have to work from is the evidence before us. A "status quo" is not evident. Court cases are inconclusive. That leaves the law and three reports issued by Congress, which all point to section 212 activities being excluded from amortization. That is, unless you apply heavy "perspective" and imagine that words mean something other than they do in any other context.
 

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with a dramatic narrative of the struggles of Congress that was grounded in nothing at all

Plenty has been written on it, none of which is dramatic. Do you really think practitioners wrote nothing on the 1984 Act when it came out? It’s not my fault if you entire argument is based entirely on what you think and not at all on what others wrote back then…

Misdirection, straw men, arguments from dramatic narrative, and circular reasoning. That's all you gave us to defend the claim you made in #28.


Among all other valid and logical points I’ve made, don’t forget the case language that’s been cited, some of which Coddington describes as “blunt.” Combined, that’s more than the zero cases you have presented.

My point was there are multiple different versions of "active" throughout the Code and IRS literature.

A terrible point indeed, given your stance that there can only be one distinct way the word “business” can ever be used in a sentence…go ask your barber if a passive net lease is a trade or business, he might be able to help you understand.

Show me one example of pre-opening costs to a section 212 activity held to be amortizable under section 195 by any court with proper jurisdiction or in any document binding on the IRS and I'll concede my entire argument.

Why? I’ve already won the argument. You obviously do not see the IRS litigating this issue, because they know they’d lose. And when they have dipped their toe into the 195 area, they have done just that - lose. Like I said in #49 – take a look-see at Charlton. Where is all the discussion of the anticipation, Section 212, Section 162, etc? I’ll tell you where – it’s nowhere. And that’s because judges are ignoring the meaningless distinction found in the ’84 statute addition and are simply asking when something actually started. That’s where were at. That’s the status quo. And you have nothing that says otherwise.

That is, unless you apply heavy "perspective" and imagine that words mean something other than they do in any other context.


You mean like the word “active” that you are now having a little bit of trouble defending, despite your “best guess?”

Again, Chay, just show us a case. You’re the IRS here arguing that something is altogether non-deductible. Surely, there’s been a case or two over the last 35-years, no?
 

#54
Chay  
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I’ve already won the argument.

On what grounds are you declaring victory?

Give me one strong argument that I haven't already addressed in post #46.

I don't think you've got any strong arguments left. Everything new you're presenting fits into one of these four categories of weak claims:

  1. Straw man attacks on my position.
  2. Arguments that a lack of controversy in the area proves you're right, although this could just as easily imply the question is settled in the opposite direction.
  3. Arguments that there is additional evidence that proves you're right, although you won't produce the evidence.
  4. Contrived problems in the law that your position is necessary to resolve, although the problems have more obvious solutions, or else don't even become problems until you impose your unfounded claims on the law.
Your most recent post, #53, contains one argument I already addressed in post #46, a mix of all of these types of weak claims, and nothing more.

You could in the alternative directly address the points I made in post #46, but you won't do that because you know I'm right about all of what I wrote there. All you can do is try and focus the argument on other areas and accuse me of not considering those areas adequately.

You've been reduced to arguing from a very weak position. By what standard have you "won the argument"?
 

#55
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A "status quo" is not evident.

You only say that because you can’t find a case that says otherwise. And in Toth, I find it interesting that she bought the “land” in 1998, she started her operation in 1998, yet absolutely nothing was required to be capitalized in that year in terms of “pre-opening” expenditures.

That leaves the law and three reports issued by Congress, which all point to section 212 activities being excluded from amortization.


Only the first report pointed to that. The second report didn’t, but instead pointed in the opposite direction. The third report, if it has any relevance, mis-stated the law.

Give me one point that I haven't already addressed in post #46

While you may have addressed them, your arguments just aren’t persuasive.

On what grounds are you declaring victory?

I ran this scenario by some esteemed colleagues, who litigate tax matters for a living…they gave your position a 30% chance of success…

You could in the alternative directly address the points I made in post #46, but you won't do that because you know I'm right about all of what I wrote there.

I could pick apart each and every of your points all day long. But to satisfy your specific request, see the very top of Post #47, wherein I addressed specific comments you made in your Post #46.

So, here we sit…a case involving a guy named Hoopengarner. The Tax Court holds that he can immediately deduct his pre-opening expenses. That loophole is closed with the DRA of 1984, which was signed by Reagan in July of 1984. The provision added to Sec 195 only addressed Hoopengarner, a 212 situation wherein the taxpayer anticipated being in business. You say we’re all well and good…that a 212 taxpayer, who always intended to be a 212 taxpayer, while he wouldn’t get caught up in the anti-Hoopengarner amendment, would get caught up in “old law” stuff anyway, causing his pre-opening costs to be capitalized. That is simply not the case under a Hoopengarner interpretation of Section 212. And that was the state of affairs when the DRA of 1984 was passed - Hoopengarner hadn’t yet been over-turned by the Tax Court. That was not until December of 1989.

So here Congress sits…first thinking there’s no problem, only to learn they’re wrong. So they put in a statutory fix that doesn’t fix everything. And then they substantially modify the definition “active trade or business,” via committee report, so that it no longer means that.

Finally, you are of course assuming that the “old body of law” is not pre-empted by Section 195, post-DRA 1984. That’s a pretty big assumption, one for which you have no support.
 

#56
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Jeff-Ohio wrote:
On what grounds are you declaring victory?

I ran this scenario by some esteemed colleagues, who litigate tax matters for a living…they gave your position a 30% chance of success…

Of course it had to be some grounds other than your ability to support the truth of your premises.

I started this thread because I perceived that a number of experienced and respectable professionals, yourself included, held a belief that wasn't supported by the law. If the fact of your belief alone were enough for you to prevail, I wouldn't even have bothered.

The fact that these colleagues of yours gave me a 30% and not a 0% or 5% chance of success is interesting. It makes it seem like they actually weighed the arguments in favor of both positions—something which I haven't seen you do. I'd be curious to know what they see as the deciding factors on each side. Hopefully, it won't be arguments from authority and the four flavors of weak claims from your recent posts.

When I weigh the two positions, I don't find that yours is entirely without merit. Congress probably was concerned about tax shelters and uncapitalized 212 start-up expenses at the time the 195 amendments were drafted, as you say they were. And it's not out of the question for the term "business" to have the meaning you say it does.

What you haven't shown is 1) that Congress was in fact as bent on nabbing 212 tax shelters and their pre-opening expenses as you say they were, 2) that they specifically intended to address these issues in the section 195 amendment, and most importantly 3) that the Committee Report they wrote and the court cases that followed it actually had the effect of addressing those things.

In an effort to prove points 1 and 2, you keep pointing to the terms "net lease" and "passive". But while these terms are consistent with your position, they don't actually prove your position. The terms are consistent with a number of assertions about the section 195 amendments, including mine.

But you brush aside the fact that your take on the intent behind those words is not the only valid one and insist that points 1 and 2 are thus proven. From there, you hold that point 3 follows logically. But like I said, while legislating by Committee Report is possible, it requires that words to the desired effect actually be written. Saying that a trade or business can be "in many respects passive", e.g. by focusing on net leases, but is still considered "active" doesn't change the meaning of "trade or business". There is no support from the courts, the IRS, or subsequent Congressional committees that the meaning of "trade or business" has been altered.

I'll now briefly address the other points you raised:

  1. Toth didn't have to capitalize anything in 1998: this only means anything if she actually had what could be called pre-opening expenses for her section 212 activity and actually tried to deduct them on her return. Neither point can be shown in the opinion.
  2. Old body of law is pre-empted by Section 195: this is a point where the burden of proof is on you. If, as I claim, section 195 doesn't address the pre-opening expenses of 212 activities, why would it make any sense for it to pre-empt anything about them? Section 248 didn't pre-empt the capitalization of partnership organizational expenses before the enactment of section 709. Why is this any different?
  3. Your argument that the status quo is there, I just need to look for it, and your arguments from post #47 that you reference are examples of the four types of weak claims I identified in post #54.
  4. My arguments are unpersuasive and the 2011 Blue Book mis-stated the law: these are merely unsupported opinions.
 

#57
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I'd be curious to know what they see as the deciding factors on each side.

They think your position is pretty well-grounded, as do I, but they are realists, as am I, and they gave a lot of weight to the following idea: The 1980 amendment didn’t cut it. Congress stepped in, in 1984, with the intended aim of reducing controversy. Your position fails on that front. They have come to understand the issue from a very basic premise: Section 195 applies to Section 212 activities. This is the exact same general premise put forth by Coddington, Hamill, the judge in Rose, etc. And they agree with my assessment of tax shelters along with the language in the ’84 report that involves the word “passive” and “net leases” (as supported by the 1983 PLR).

These are not weak claims. As one contemporaneous commentator put it:

Equipment leasing tax shelters usually involve net leased property, as is also often the case with single tenant real estate and with commercial real estate, so that all of these activities standing alone failed to constitute an active trade or business under traditional authorities. Hoopengarner could be used in these situations to obtain current deductions for pre-opening costs under section 212, but not for investigatory costs, as soon as an asset to be used in the activity is acquired, and perhaps even earlier when contractual obligations identifying the activity are assumed. So long as such activities are never "anticipated" to rise to active business status, they would not be caught by the new anti-Hoopengarner additional definition of start-up costs. Therefore, such activities would not be capitalized under post-1984 section 195(a). Clearly, the drafters of the Committee Reports accompanying the 1984 version of section 195 wanted a broader definition of "active business" to render the preemptive section 195 applicable, denying the current deduction of pre-operating costs of such net leased property under section 212.

So, Jeff-Ohio didn’t make anything up here. These aren’t colorful claims. It is relevant background information (i.e. context) that is necessary to have in order to appreciate what was happening at the time. My colleagues think that when the ’84 Report drew in net leases (which they describe as portfolio income, because that’s really what it is, even though related deductions are above the line), that expanded the definition to cover all Section 212 activities, including those that never intended to be a “business.” They also point out something which I already knew: The DRA of 1984 targeted tax shelters in other aspects and, around that time, there were numerous hearings on Capitol Hill pertaining to tax shelters.

The real question in their mind, which I have already mentioned, is the legal effect a court would give to “legislation” that isn’t part of the statute, per se, but is only part of a committee report. They’re pretty confident that the ’84 Report would be viewed as being interpretive/clarifying, meaning that it isn’t creating law all by itself in isolation. And they feel pretty strongly a court would see it that way as well, in light of the general motive behind the 1984 amendment. For that reason, they don’t even think the IRS would litigate the issue.
 

#58
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Jeff-Ohio wrote:These are not weak claims.

I agree: the claims you made in your last post aren't weak. You're finally beginning to pull in evidence to support your version of Congressional intent over mine.

It would have been nice of you to do this back around post #30 instead of mounting a straw man attack on my argument—that might have saved us both a whole lot of typing.

Can you provide a citation for the excerpt you inserted and point to the other aspects of the DRA of 1984 that are in line with Congressional intent as you see it?

Also, do you have any sources regarding the contemporaneous tax shelter hearings you mentioned?
 

#59
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I happened to stumble on the article you got the excerpt from:

Start-Up Costs, Section 195 and Clear Reflection of Income: A Tale of Talismans, Tacked-on Tax Reform and a Touch of Basics

It appears that section 4 ("1984 Amendments"; pp. 112-117), particularly the bit at the end about how the Committee Report "lost sight of the forest" (echoed in your post #43), sets forth the rationale on which your entire position is grounded. Would that be fair to say?
 

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Would that be fair to say?


Truly, there are many, many pieces to this puzzle. And often, we see sound legal reasoning, such as your reasoning, get pushed aside in favor of some “higher end,” like elimination of controversy. I just kind of think that’s how this situation would play out. But I’d be happy to take the other side of the debate.

As to this comment:

Can you provide a citation for the excerpt you inserted and point to the other aspects of the DRA of 1984 that are in line with Congressional intent as you see it?


What I was saying is that this was about the time when tax shelters were profilerating, so there was a lot of tax shelter stuff “in general” in the ’84 Act. The tax shelter situation played into the backdrop of the Sec 195 issue, I’m pretty sure.

Starting on Page 158 of this piece, various and sundry “tax shelter” related items associated with the DRA of 1984 are mentioned. I only glanced at it, but I know there were other things in the Act, like things about accounting methods.

https://scholarship.law.wm.edu/cgi/view ... ontext=tax

It would have been nice of you to do this back around post #30 instead of mounting a straw man attack on my argument—that might have saved us both a whole lot of typing.


I don’t think we get our best “Chay” if things wind down too quickly…

I’d have to dive into that, but I don’t think they’re hard to find. Here’s one thing, though:

https://www.treasury.gov/resource-cente ... 1-1984.pdf

The comment on Page xiii is interesting, about the front-loading of benefits…

This article is a good layman’s summary of the lay of the land in the early 80’s:

http://archive.fortune.com/magazines/fo ... /index.htm
 

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