Trusts have hard time beating passive-loss rules.(LOSSES)(Brief article)

Kiplinger Tax Letter, The, August, 2007

Trusts have a hard time beating the passive-loss rules, an IRS private ruling says. Trustees must materially participate in the trust's business or the losses from the activity aren't deductible. Hiring others to manage the business is not sufficient, in the IRS' view.

The IRS ruling conflicts with an earlier court decision. In 2003, a district court said management activities of employees hired by a trust are attributed to it. The time they spent managing the trust's business is counted in testing if the trustees met the material participation test. The Service disagrees with this case and will not abide by the decision.