Garnett v. Comm'r, 2009 U.S. Tax Ct. LEXIS 18 (T.C. June 30, 2009)

Garnett v. Comm'r, 2009 U.S. Tax Ct. LEXIS 18 (T.C. June 30, 2009)

Plaintiffs owned interests in L.L.P.s, L.L.C.s, and tenancies in common. On cross-motions for partial summary judgment, the parties request a ruling as to whether plaintiffs’ interests are subject to IRC Sec § 469(h)(2), which treats losses from an interest in a limited partnership as a limited partner as presumptively passive. The law’s general partnership exception applied because relevant LLP agreements provided that each partner would actively participate in the control, management, and direction of the partnership's business, even though the agreements also generally provided that no partner would be liable for the partnership's debts or obligations. Relevant LLC tax reporting and tenancy-in-common indicia also reflected active participation. Moreover, when it enacted section 469(h)(2) in 1986, Congress did not have LLPs specifically in mind, since LLPs did not come into existence until 1991.

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