The IRS Associate Chief Counsel, in a letter issued on December 17, 2014, addressed the following two questions:
- Whether a real estate agent is engaged in a real property brokerage trade or business within the meaning of § 469(c)(7)(C)?
- Whether a mortgage broker is engaged in a real property brokerage trade or business within the meaning of § 469(c)(7)(C)?
At issue was the limitation on deducting losses from each type of business and whether each person was considered to be in a “real property trade or business” within the particular section of the tax code.
This section defines the term “real property trade or business” as “any real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental operation, management, leasing, or brokerage trade or business.” The IRS concluded that a real estate agent was engaged in a real property brokerage trade or business as the business involves bringing together buyers and sellers of real property. However, the Advice stated that Congress did not include the term “finance operations” in the text of the final bill. As such, the IRS inferred that Congress did not intend for financing activities to be considered real property trades or businesses within this section of the tax code. The IRS therefore concluded that a mortgage broker, although in the business of “financing” of real property by bringing together lenders and borrowers, is not a real property brokerage trade or business.
Pursuant to § 6110(k)(3), Chief Counsel Advice letters are not to be relied upon or otherwise cited as precedent. We refer to them only to demonstrate a position taken by the IRS on a fact pattern similar to the fact pattern described in this opinion: C.C.A. 2015-04-010 (Dec. 17, 2014). Please contact us should you like to discuss your particular facts and circumstances.