Income Tax Alert: Tax Court Rules That Trust Qualifies For Passive Activity Exception

On March 27, 2014, the U.S. Tax Court issued its decision for the case of Frank Aragona Trust et al. v. Commissioner, 142 T.C. No. 9, No. 15392-11 (2014). The Court held that the Frank Aragona Trust (“the Trust”) qualified for the Internal Revenue Code (“IRC”) Sec. 469(c)(7) passive activity exception. The Tax Court found that a trust is capable of performing personal services through its individual trustees and that the Trust materially participated in real property trades or business. It concluded that the Trust’s rental activities were consequently not passive.

In light of the recent imposition of the 3.8 % Net Investment Income Tax (NIIT), this ruling is especially important because any income derived from trade or activities in which a trust or estate materially participates would not be subject the NIIT. Continue reading “Income Tax Alert: Tax Court Rules That Trust Qualifies For Passive Activity Exception”