On Tuesday, June 21, 2016 at 5:30:32 PM UTC-4, lotax wrote:
> How have the IRS and the courts chosen to disregard IRC section 1402(a), as follows?
>
> "(a) Net earnings from self-employment
> The term “net earnings from self-employment” means the gross income derived by an individual from any trade or business carried on by such individual, less the deductions allowed by this subtitle which are attributable to such trade or business, ... except that in computing such gross income and deductions ... -
> (1) **there shall be excluded rentals from real estate and from personal property leased with the real estate** ... together with the deductions attributable thereto, unless such rentals are received in the course of a trade or business as a real estate dealer ...." [**emphasis** added]
>
> I think the IRS and the courts have looked to the *services* provided with the rental real estate, and *not* the length of the rentals, in applying SE tax to rental income from rents of a week or less.
>
> All the cites to Section 469 and its regs apply only in the context of the passive activity rules and have nothing to do with self-employment tax.
>
> --
Section 469 defines passive activities and generally includes rental activities as passive. Whether short-term rentals are "rental activities" under the Code is the key point.
Reg. 1.469-4(b) defines types of activities:
(b) Definitions. The following definitions apply for purposes of this section—
(1) Trade or business activities. Trade or business activities are activities, other than rental activities or activities that are treated under § 1.469-1T(e)(3)(vi)(B) as incidental to an activity of holding property for investment, that—
(i) Involve the conduct of a trade or business (within the meaning of section 162);
(ii) Are conducted in anticipation of the commencement of a trade or business; or
(iii) Involve research or experimental expenditures that are deductible under section 174 (or would be deductible if the taxpayer adopted the method described in section 174(a)).
(2) Rental activities. Rental activities are activities that constitute rental activities within the meaning of § 1.469-1T(e)(3).
The problem with your assertion comes at the end of subparagraph (2) above.
Reg. 1.469-1T(e)(3)(ii) carves out six exceptions which make rental a arrangements not rental activities:
(ii) Exceptions. For purposes of this paragraph (e)(3), an activity involving the use of tangible property is not a rental activity for a taxable year if for such taxable year—
(A) The average period of customer use for such property is seven days or less;
(B) The average period of customer use for such property is 30 days or less, and significant personal services (within the meaning of paragraph (e)(3)(iv) of this section) are provided by or on behalf of the owner of the property in connection with making the property available for use by customers;
(C) Extraordinary personal services (within the meaning of paragraph (e)(3)(v) of this section) are provided by or on behalf of the owner of the property in connection with making such property available for use by customers (without regard to the average period of customer use);
(D) The rental of such property is treated as incidental to a nonrental activity of the taxpayer under paragraph (e)(3)(vi) of this section;
(E) The taxpayer customarily makes the property available during defined business hours for nonexclusive use by various customers; or
(F) The provision of the property for use in an activity conducted by a partnership, S corporation, or joint venture in which the taxpayer owns an interest is not a rental activity under paragraph (e)(3)(vii) of this section.
Going back to IRC 469(l), the Secretary has the authority to issue Regs that define what is (not) a passive activity (among other things).
That leaves you with "trade or business" (defined as any activity carried on for the production of income from selling goods or performing services) and income from conducting a trade or business is subject to SE tax.
Ira Smilovitz