Section of Taxation Publications
 VOL. 55
NO. 4
Contents | TTL Home

Note: The following is an excerpt from the introduction to the article as published in The Tax Lawyer. Author citations have been omitted for brevity. Tax Section members may read the article in its entirety in Adobe Acrobat format.
The Real Estate Exception to the Passive Activity Rules in Mowafi v. Commissioner and the New Burden Shifting Statute
Pedram Ben-Cohen

In Mowafi v. Commissioner, the Tax Court held that the taxpayer did not meet the burden of proof required for the real estate professional exception to the passive activity rules. The court found that the taxpayer's inconsistent testimony combined with logs that were prepared two to three years after the activities supposedly occurred did not establish the requisite proof under section 469(c)(7). Ultimately, Mowafi establishes that it will be very difficult for a taxpayer with a full-time job to qualify for the real estate professional exception.

Part I of this Note summarizes the relevant tax law and the facts of Mowafi. Part II analyzes the decision of the Tax Court and demonstrates that the court's holding is consistent with prior case law. Part III discusses section 7491 which shifts the burden of proof to the Service once the taxpayer produces credible evidence concerning any factual issue in dispute, and concludes that the outcome in this case would have been the same under the new burden shifting statute. Part IV explains the tax planning implications of the real estate professional exception. Part V concludes that taxpayers should maintain detailed contemporaneous records to meet the requirements of section 469.


Published by
Section of Taxation, American Bar Association
With the Assistance of
Georgetown University Law Center


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