26 CFR §1.469-4T

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(a)Overview
1. (1)Purpose and effect of overview. This paragraph (a) contains a general description of the rules contained in this section and is intended solely as an aid to readers. The provisions of this paragraph (a) are not a substitute for the more detailed rules contained in the remainder of this section and cannot be relied upon in cases in which those rules qualify the general description contained in this paragraph (a).
2. (2)Scope and structure of § 1.469-4T. This section provides rules under which a taxpayer's business and rental operations are treated as one or more activities for purposes of section 469 and the regulations thereunder. (See paragraph (b)(2)(ii) of this section for the definition of business and rental operations.) In general, these rules are divided into three groups:
  1. (i)Rules that identify the business and rental operations that constitute an undertaking (the undertaking rules).
  2. (ii)Rules that identify the undertaking or undertakings that constitute an activity (the activity rules).
  3. (iii)Rules that apply only under certain special circumstances (the special rules).
3. (3)Undertaking rules
  1. (i)In general. The undertaking is generally the smallest unit that can constitute an activity. (See paragraph (b)(1) of this section for the general rule and paragraph (k)(2)(iii) of this section for a special rule that permits taxpayers to treat a single rental real estate undertaking as multiple activities.) An undertaking may include diverse business and rental operations.
  2. (ii)Basic undertaking rule. The basic undertaking rule identifies the business and rental operations that constitute an undertaking by reference to their location and ownership. Under this rule, business and rental operations that are conducted at the same location and are owned by the same person are generally treated as part of the same undertaking. Conversely, business and rental operations generally constitute separate undertakings to the extent that they are conducted at different locations or are not owned by the same person. (See paragraph (c)(2)(i) of this section.)
  3. (iii)Circumstances in which location is disregarded. In some circumstances, the undertaking in which business and rental operations are included does not depend on the location at which the operations are conducted. Operations that are not conducted at any fixed place of business or that are conducted at the customer's place of business are treated as part of the undertaking with which the operations are most closely associated (see paragraph (c)(2)(iii)(C) of this section). In addition, operations that are conducted at a location but do not relate to the production of property at that location or to the transaction of business with customers at that location are treated, in effect, as part of the undertaking or undertakings that the operations support (see paragraph (c)(2)(ii) of this section).
  4. (iv)Rental undertakings. The basic undertaking rule is also modified if the undertaking determined under that rule includes both rental and nonrental operations. In such cases, the rental operations and the nonrental operations generally must be treated as separate undertakings (see paragraph (d)(1) of this section). This rule does not apply if more than 80 percent of the income of the undertaking determined under the basic rule is attributable to one class of operations (i.e., rental or nonrental) or if the rental operations would not be treated as part of a rental activity because of the exceptions contained in § 1.469-1T(e)(3)(ii) (see paragraph (d)(2) of this section). In applying the rental undertaking rules, short-term rentals of real property (e.g., hotel-room rentals) are generally treated as nonrental operations (see paragraph (d)(3)(ii) of this section).
  5. (v)Oil and gas wells. Another exception to the basic undertaking rule treats oil and gas wells that are subject to the working-interest exception in § 1.469-1T(e)(4) as separate undertakings (see paragraph (e) of this section).
4. (4)Activity rules
  1. (i)In general. The basic activity rule treats each undertaking in which a taxpayer owns an interest as a separate activity of the taxpayer (see paragraph (b)(1) of this section). In the case of trade or business undertakings, professional service undertakings, and rental real estate undertakings, additional rules may either require or permit the aggregation of two or more undertakings into a single activity.
  2. (ii)Aggregation of trade or business undertakings
    1. (A)Trade or business undertakings. Trade or business undertakings include all nonrental undertakings other than oil and gas undertakings described in paragraph (a)(3)(v) of this section and professional service undertakings described in paragraph (a)(4)(iii) of this section (see paragraph (f)(1)(ii) of this section).
    2. (B)Similar, commonly-controlled undertakings treated as a single activity. An aggregation rule treats trade or business undertakings that are both similar and controlled by the same interests as part of the same activity. This rule is, however, generally inapplicable to small interests held by passive investors in such undertakings, except to the extent such interests are held through the same passthrough entity. (See paragraph (f)(2) of this section.) Undertakings are similar for purposes of this rule if more than half (by value) of their operations are in the same line of business (as defined in a revenue procedure issued pursuant to paragraph (f)(4)(iv) of this section) or if the undertakings are vertically integrated (see paragraph (f)(4)(iii) of this section). All the facts and circumstances are taken into account in determining whether undertakings are controlled by the same interests for purposes of the aggregation rule (see paragraph (j)(1) of this section). If, however, each member of a group of five or fewer persons owns a substantial interest in each of the undertakings, the undertakings may be rebuttably presumed to be controlled by the same interests (see paragraph (j) (2) and (3) of this section).
    3. (C)Integrated businesses treated as a single activity. Trade or business undertakings (including undertakings that have been aggregated because of their similarity and common control) are subject to a second aggregation rule. Under this rule undertakings that constitute an integrated business and are controlled by the same interests must be treated as part of the same activity. (See paragraph (g) of this section.)
  3. (iii)Aggregation of professional service undertakings. Professional service undertakings are nonrental undertakings that predominantly involve the provision of services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting (see paragraph (h)(1)(ii) of this section). In general, professional service undertakings that are either similar, related, or controlled by the same interests must be treated as part of the same activity (see paragraph (h)(2) of this section). The rules for determining whether trade or business undertakings are controlled by the same interests also apply with respect to professional service undertakings. Professional service undertakings are similar, however, if more than 20 percent (by value) of their operations are in the same field, and two professional service undertakings are related if one of the undertakings derives more than 20 percent of its gross income from persons who are customers of the other undertaking (see paragraph (h)(3) of this section).
  4. (iv)Rules for rental real estate
    1. (A)Taxpayers permitted to determine rental real estate activities. The rules for aggregating rental real estate undertakings are generally elective. They permit taxpayers to treat any combination of rental real estate undertakings as a single activity. Taxpayers may also divide their rental real estate undertakings and then treat portions of the undertakings as separate activities or recombine the portions into activities that include parts of different undertakings. (See paragraph (k)(2) (i) and (iii) of this section.)
    2. (B)Limitations on fragmentation and aggregation of rental real estate. Taxpayers may not fragment their rental real estate in a manner that is inconsistent with their treatment of such property in prior taxable years or with the treatment of such property by the passthrough entity through which it is held (see paragraph (k) (2)(ii) and (3) of this section). There are no comparable limitations on the aggregation of rental real estate into a single activity. If however, the income or gain from a rental real estate undertaking is subject to recharacterization under § 1.469-2T(f)(3) (relating to the rental of nondepreciable property), a coordination rule provides that the undertaking must be treated as a separate activity (see paragraph (k)(6) of this section.)
  5. (v)Election to treat nonrental undertakings as separate activities. Another elective rule permits taxpayers to treat a nonrental undertaking as a separate activity even if the undertaking would be treated as part of a larger activity under the aggregation rules applicable to the undertaking (see paragraph (o)(2) of this section). This elective rule is limited by consistency requirements similar to those that apply to rental real estate operations (see paragraph (o) (3) and (4) of this section). Moreover, in cases in which a taxpayer elects to treat a nonrental undertaking as a separate activity, the taxpayer's level of participation (i.e., material, significant, or otherwise) in the separate activity is the same as the taxpayer's level of participation in the larger activity in which the undertaking would be included but for the election (see paragraph (o)(6) of this section).
5. (5)Special rules
  1. (i)Consolidated groups and publicly traded partnerships. Special rules apply to the business and rental operations of consolidated groups of corporations and publicly traded partnerships. Under these rules, a consolidated group is treated as one taxpayer in determining its activities and those of its members (see paragraph (m) of this section), and business and rental operations owned through a publicly traded partnership cannot be aggregated with operations that are not owned through the partnership (see paragraph (n) of this section).
  2. (ii)Transitional rule. A special rule applies for taxable years ending before August 10, 1989. In those years, taxpayers may organize business and rental operations into activities under any reasonable method (see paragraph (p)(1) of this section). A taxpayer will also be permitted to use any reasonable method to allocate disallowed deductions and credits among activities for the first taxable year in which the taxpayer's activities are determined under the general rules of § 1.469-4T (see paragraph (p)(3) of this section).
(b)General rule and definitions of general application
1. (1)General rule. Except as otherwise provided in this section, each undertaking in which a taxpayer owns an interest shall be treated as a separate activity of the taxpayer. See paragraphs (f), (g), and (h) of this section for rules requiring certain nonrental undertakings to be treated as part of the same activity and paragraph (k) of this section for rules identifying the rental real estate undertakings (or portions thereof) that are included in an activity.
2. (2)Definitions of general application. The following definitions set forth the meaning of certain terms for purposes of this section:
  1. (i)Passthrough entity. The term “passthrough entity” means a partnership, S corporation, estate, or trust.
  2. (ii)Business and rental operations
    1. (A)In general. Except as provided in paragraph (b)(2)(ii)(B) of this section, the term “business and rental operations” means all endeavors that are engaged in for profit or the production of income and satisfy one or more of the following conditions for the taxable year:
      1. (1)Such endeavors involve the conduct of a trade or business (within the meaning of section 162) or are conducted in anticipation of such endeavors becoming a trade or business;
      2. (2)Such endeavors involve making tangible property available for use by customers; or
      3. (3)Research or experimental expenditures paid or incurred with respect to such endeavors are deductible under section 174 (or would be deductible if the taxpayer adopted the method described in section 174(a)).
    2. (B)Operations conducted through nonpassthrough entities. For purposes of applying section 469 and the regulations thereunder, a taxpayer's activities do not include operations that a taxpayer conducts through one or more entities (other than passthrough entities). The following example illustrates the operation of this paragraph (b)(2)(ii)(B):
(c)Undertaking
1. (1)In general. Except as otherwise provided in paragraphs (d), (e), and (k)(2)(iii) of this section, business and rental operations that constitute a separate source of income production shall be treated as a single undertaking that is separate from other undertakings.
2. (2)Operations treated as a separate source of income production
  1. (i)In general. Except as otherwise provided in this paragraph (c)(2), business and rental operations shall be treated for purposes of this paragraph (c) as a separate source of income production if and only if—
    1. (A)Such operations are conducted at the same location (within the meaning of paragraph (c)(2)(iii) of this section) and are owned by the same person (within the meaning of paragraph (c)(2)(v) of this section); and
    2. (B)Income-producing operations (within the meaning of paragraph (c)(2)(iv) of this section) owned by such person are conducted at such location.
  2. (ii)Treatment of support operations
    1. (A)In general. For purposes of section 469 and the regulations thereunder—
      1. (1)The support operations conducted at a location shall not be treated as part of an undertaking under paragraph (c)(2)(i) of this section; and
      2. (2)The income and expenses that are attributable to such operations and are reasonably allocable to an undertaking conducted at a different location shall be taken into account in determining the income or loss from the activity or activities that include such undertaking.
    2. (B)Support operations. For purposes of this paragraph (c)(2), the business and rental operations conducted at a location are treated as support operations to the extent that—
      1. (1)Such operations and an undertaking that is conducted at a different location are owned by the same person (within the meaning of paragraph (c)(2)(v) of this section);
      2. (2)Such operations involve the provision of property or services to such undertaking; and
      3. (3)Such operations are not income-producing operations (within the meaning of paragraph (c)(2)(iv) of this section).
  3. (iii)Location. For purposes of this paragraph (c)(2)—
    1. (A)The term “location” means, with respect to any business and rental operations, a fixed place of business at which such operations are regularly conducted;
    2. (B)Business and rental operations are conducted at the same location if they are conducted in the same physical structure or within close proximity of one another;
    3. (C)Business and rental operations that are not conducted at a fixed place of business or that are conducted on the customer's premises shall be treated as operations that are conducted at the location (other than the customer's premises) with which they are most closely associated;
    4. (D)All the facts and circumstances (including, in particular, the factors listed in paragraph (c)(3) of this section) are taken into account in determining the location with which business and rental operations are most closely associated; and
    5. (E)Oil and gas operations that are conducted for the development of a common reservoir are conducted within close proximity of one another.
  4. (iv)Income-producing operations. For purposes of this paragraph (c)(2), the term “income-producing operations” means business and rental operations that are conducted at a location and relate to (or are conducted in reasonable anticipation of)—
    1. (A)The production of property at such location;
    2. (B)The sale of property to customers at such location;
    3. (C)The performance of services for customers at such location;
    4. (D)Transactions in which customers take physical possession at such location of property that is made available for their use; or
    5. (E)Any other transactions that involve the presence of customers at such location.
  5. (v)Ownership by the same person. For purposes of this paragraph (c)(2), business and rental operations are owned by the same person if and only if one person (within the meaning of section 7701(a)(1)) is the direct owner of such operations.
3. (3)Facts and circumstances determinations. In determining whether a location is the location with which business and rental operations are most closely associated for purposes of paragraph (c)(2)(iii)(D) of this section, the following relationships between operations that are conducted at such location and other operations are generally the most significant:
  1. (i)The extent to which other persons conduct similar operations at one location;
  2. (ii)Whether such operations are treated as a unit in the primary accounting records reflecting the results of such operations;
  3. (iii)The extent to which other persons treat similar operations as a unit in the primary accounting records reflecting the results of such similar operations;
  4. (iv)The extent to which such operations involve products or services that are commonly provided together;
  5. (v)The extent to which such operations serve the same customers;
  6. (vi)The extent to which the same personnel, facilities, or equipment are used to conduct such operations;
  7. (vii)The extent to which such operations are conducted in coordination with or reliance upon each other;
  8. (viii)The extent to which the conduct of any such operations is incidental to the conduct of the remainder of such operations;
  9. (ix)The extent to which such operations depend on each other for their economic success; and
  10. (x)Whether such operations are conducted under the same trade name.
4. (4)Examples. The following examples illustrate the application of this paragraph (c). In each example that does not state otherwise, the taxpayer is an individual and the facts, analysis, and conclusion relate to a single taxable year.
(d)Rental undertaking
1. (1)In general. This paragraph (d) applies to operations that are treated, under paragraph (c) of this section and before the application of paragraph (d)(1)(i) of this section, as a single undertaking that is separate from other undertakings (a “paragraph (c) undertaking”). For purposes of this section—
  1. (i)A paragraph (c) undertaking's rental operations and its operations other than rental operations shall be treated, except as otherwise provided in paragraph (d)(2) of this section, as two separate undertakings;
  2. (ii)The income and expenses that are reasonably allocable to an undertaking (determined after the application of paragraph (d)(1)(i) of this section) shall be taken into account in determining the income or loss from the activity or activities that include such undertaking; and
  3. (iii)An undertaking (determined after the application of paragraph (d)(1)(i) of this section) shall be treated as a rental undertaking if and only if such undertaking, considered as a separate activity, would constitute a rental activity (within the meaning of § 1.469-1T(e)(3)).
2. (2)Exceptions. Paragraph (d)(1)(i) of this section shall not apply to a paragraph (c) undertaking for any taxable year in which—
  1. (i)The rental operations of the paragraph (c) undertaking, considered as a separate activity, would not constitute a rental activity (within the meaning of § 1.469-1T(e)(3));
  2. (ii)Less than 20 percent of the gross income of the paragraph (c) undertaking is attributable to rental operations; or
  3. (iii)Less than 20 percent of the gross income of the paragraph (c) undertaking is attributable to operations other than rental operations.
3. (3)Rental operations. For purposes of this paragraph (d), a paragraph (c) undertaking's rental operations are determined under the following rules:
  1. (i)General rule. Except as otherwise provided in paragraph (d)(3) (ii) or (iii) of this section, a paragraph (c) undertaking's rental operations are all of the undertaking's business and rental operations that involve making tangible property available for use by customers and the provision of property and services in connection therewith.
  2. (ii)Real property provided for short-term use. A paragraph (c) undertaking's operations that involve making short-term real property available for use by customers and the provision of property and services in connection therewith shall not be treated as rental operations if such operations, considered as a separate activity, would not constitute a rental activity. An item of property is treated as short-term real property for this purpose if and only if such item is real property that the paragraph (c) undertaking makes available for use by customers and the average period of customer use (within the meaning of § 1.469-1T(e)(3)(iii)) for all of the paragraph (c) undertaking's real property of the same type as such item is 30 days or less.
  3. (iii)Property made available to licensees. A paragraph (c) undertaking's operations that involve making tangible property available during defined business hours for nonexclusive use by various customers shall not be treated as rental operations. (See § 1.469-1T(e)(3)(ii)(E).)
4. (4)Examples. The following examples illustrate the application of this paragraph (d). In each example that does not state otherwise, the taxpayer is an individual and the facts, analysis, and conclusions relate to a single taxable year.
(e)Special rules for certain oil and gas operations
1. (1)Wells treated as nonpassive under § 1.469-1T(e)(4)(i). An oil or gas well shall be treated as an undertaking that is separate from other undertakings in determining the activities of a taxpayer for a taxable year if the following conditions are satisfied:
  1. (i)The well is drilled or operated pursuant to a working interest (within the meaning of § 1.469-1T(e)(4)(iv)) and at any time during such taxable year the taxpayer holds such working interest either—
    1. (A)Directly; or
    2. (B)Through an entity that does not limit the liability of the taxpayer with respect to the drilling or operation of such well pursuant to such working interest; and
  2. (ii)The taxpayer would not be treated as materially participating (within the meaning of § 1.469-5T) for the taxable year in the activity in which such well would be included if the taxpayer's activities were determined without regard to this paragraph (e).
2. (2)Business and rental operations that constitute an undertaking. In any case in which an oil or gas well is treated under this paragraph (e) as an undertaking that is separate from other undertakings, the business and rental operations that constitute such undertaking are the business and rental operations that are attributable to such well.
3. (3)Examples. The following examples illustrate the application of this paragraph (e). In each example, the taxpayer is an individual whose taxable year is the calendar year.
(f)Certain trade or business undertakings treated as part of the same activity
1. (1)Applicability
  1. (i)In general. This paragraph (f) applies to a taxpayer's interests in trade or business undertakings (within the meaning of paragraph (f)(1)(ii) of this section).
  2. (ii)Trade or business undertaking. For purposes of this paragraph (f), the term “trade or business undertaking” means any undertaking in which a taxpayer has an interest, other than—
    1. (A)A rental undertaking (within the meaning of paragraph (d) of this section);
    2. (B)An oil or gas well treated as an undertaking that is separate from other undertakings under paragraph (e) of this section; or
    3. (C)A professional service undertaking (within the meaning of paragraph (h) of this section).
2. (2)Treatment as part of the same activity. A taxpayer's interests in two or more trade or business undertakings that are similar (within the meaning of paragraph (f)(4) of this section) and controlled by the same interests (within the meaning of paragraph (j) of this section) shall be treated as part of the same activity of the taxpayer for any taxable year in which the taxpayer—
  1. (i)Owns interests in each such undertaking through the same passthrough entity;
  2. (ii)Owns a direct or substantial indirect interest (within the meaning of paragraph (f)(3) of this section) in each such undertaking; or
  3. (iii)Materially or significantly participates (within the meaning of § 1.469-5T) in the activity that would result if such undertakings were treated as part of the same activity.
3. (3)Substantial indirect interest
  1. (i)In general. For purposes of this paragraph (f), a taxpayer owns a substantial indirect interest in an undertaking for a taxable year if at any time during such taxable year the taxpayer's ownership percentage (determined in accordance with paragraph (j)(3) of this section) in a passthrough entity that directly owns such undertaking exceeds ten percent.
  2. (ii)Coordination rule. A taxpayer shall be treated for purposes of this paragraph (f) as owning a substantial indirect interest in each of two or more undertakings for any taxable year in which—
    1. (A)Such undertakings are treated as part of the same activity of the taxpayer under paragraph (f)(2)(i) of this section; and
    2. (B)The taxpayer owns a substantial indirect interest (within the meaning of paragraph (f)(3)(i) of this section) in any such undertaking.
4. (4)Similar undertakings
  1. (i)In general. Except as provided in paragraph (f)(4)(iii) of this section, two undertakings are similar for purposes of this paragraph (f) if and only if—
    1. (A)There are predominant operations in each such undertaking; and
    2. (B)The predominant operations of both undertakings are in the same line of business.
  2. (ii)Predominant operations. For purposes of paragraph (f)(4)(i)(A) of this section, there are predominant operations in an undertaking if more than 50 percent of the undertaking's gross income is attributable to operations in a single line of business.
  3. (iii)Vertically-integrated undertakings. If an undertaking (the “supplier undertaking”) provides property or services to other undertakings (the “recipient undertakings”), the following rules apply for purposes of this paragraph (f):
    1. (A)Supplier undertaking similar to recipient undertaking. If the supplier undertaking predominantly involves the provision of property and services to a recipient undertaking that is controlled by the same interests (within the meaning of paragraph (j) of this section), the supplier undertaking shall be treated as similar to the recipient undertaking. For purposes of applying the preceding sentence—
      1. (1)If a supplier undertaking and two or more recipient undertakings that are similar (within the meaning of paragraph (f)(4)(i) of this section) are controlled by the same interests, such recipient undertakings shall be treated as a single undertaking; and
      2. (2)A supplier undertaking predominantly involves the provision of property and services to a recipient undertaking for any taxable year in which such recipient undertaking obtains more than 50 percent (by value) of all property and services provided by the supplier undertaking.
    2. (B)Recipient undertaking similar to supplier undertaking. If the supplier undertaking is the predominant provider of property and services to a recipient undertaking that is controlled by the same interests (within the meaning of paragraph (j) of this section), the recipient undertaking shall be treated, except as otherwise provided in paragraph (f)(4)(iii)(C) of this section, as similar to the supplier undertaking. For purposes of the preceding sentence, a supplier undertaking is the predominant provider of property and services to a recipient undertaking for any taxable year in which the supplier undertaking provides more than 50 percent (by value) of all property and services obtained by the recipient undertaking.
    3. (C)Coordination rules.
      1. (1)Paragraph (f)(4)(iii)(B) of this section does not apply if, under paragraph (f)(4)(iii)(A) of this section—
        (i)The supplier undertaking is treated as an undertaking that is similar to any recipient undertaking;
        (ii)The recipient undertaking is treated as a supplier undertaking that is similar to another recipient undertaking; or
        (iii)Another supplier undertaking is treated as an undertaking that is similar to the recipient undertaking.
      2. (2)If paragraph (f)(4)(iii)(A) of this section applies to a supplier undertaking, the supplier undertaking shall be treated as similar to undertakings that are similar to the recipient undertaking and shall not otherwise be treated as similar to undertakings to which the supplier undertaking would be similar without regard to paragraph (f)(4)(iii) of this section.
      3. (3)If paragraph (f)(4)(iii)(B) of this section applies to a recipient undertaking, the recipient undertaking shall be treated as similar to undertakings that are similar to the supplier undertaking and shall not otherwise be treated as similar to undertakings to which the recipient undertaking would be similar without regard to paragraph (f)(4)(iii) of this section.
  4. (iv)Lines of business. The Commissioner shall establish, by revenue procedure, lines of business for purposes of this paragraph (f)(4). Business and rental operations that are not included in the lines of business established by the Commissioner shall nonetheless be included in a line of business for purposes of this paragraph (f)(4). Such operations shall be included in a single line of business or in multiple lines of business on a basis that reasonably reflects—
    1. (A)Similarities and differences in the property or services provided pursuant to such operations and in the markets to which such property or services are offered; and
    2. (B)The treatment within the lines of business established by the Commissioner of operations that are comparable in their similarities and differences.
5. (5)Examples. The following examples illustrate the application of this paragraph (f). In each example that does not state otherwise, the taxpayer is an individual and the facts, analysis, and conclusions relate to a single taxable year.
(g)Integrated businesses
1. (1)Applicability
  1. (i)In general. This paragraph (g) applies to a taxpayer's interests in trade or business activities (within the meaning of paragraph (g)(1)(ii) of this section).
  2. (ii)Trade or business activity. For purposes of this paragraph (g), the term “trade or business activity” means any activity (determined without regard to this paragraph (g)) that consists of interests in one or more trade or business undertakings (within the meaning of paragraph (f)(1)(ii) of this section).
2. (2)Treatment as a single activity. A taxpayer's interests in two or more trade or business activities shall be treated as a single activity if and only if—
  1. (i)The operations of such trade or business activities constitute a single integrated business, activities constitute a single integrated business; and
  2. (ii)Such activities are controlled by the same interests (within the meaning of paragraph (j) of this section).
3. (3)Facts and circumstances test. In determining whether the operations of two or more trade or business activities constitute a single integrated business for purposes of this paragraph (g), all the facts and circumstances are taken into account, and the following factors are generally the most significant:
  1. (i)Whether such operations are conducted at the same location;
  2. (ii)The extent to which other persons conduct similar operations at one location;
  3. (iii)Whether such operations are treated as a unit in the primary accounting records reflecting the results of such operations;
  4. (iv)The extent to which other persons treat similar operations as a unit in the primary accounting records reflecting the results of such similar operations;
  5. (v)Whether such operations are owned by the same person (within the meaning of paragraph (c)(2)(v) of this section);
  6. (vi)The extent to which such operations involve products or services that are commonly provided together;
  7. (vii)The extent to which such operations serve the same customers;
  8. (viii)The extent to which the same personnel, facilities, or equipment are used to conduct such operations;
  9. (ix)The extent to which such operations are conducted in coordination with or reliance upon each other;
  10. (x)The extent to which the conduct of any such operations is incidental to the conduct of the remainder of such operations;
  11. (xi)The extent to which such operations depend on each other for their economic success; and
  12. (xii)Whether such operations are conducted under the same trade name.
4. (4)Examples. The following examples illustrate the application of this paragraph (g). The facts, analysis, and conclusion in each example relate to a single taxable year, and the trade or business activities described in each example are controlled by the same interests (within the meaning of paragraph (j) of this section).
(h)Certain professional service undertakings treated as a single activity
1. (1)Applicability
  1. (i)In general. This paragraph (h) applies to a taxpayer's interests in professional service undertakings (within the meaning of paragraph (h)(1)(ii) of this section).
  2. (ii)Professional service undertaking. For purposes of this paragraph (h), an undertaking is treated as a professional service undertaking for any taxable year in which the undertaking derives more than 50 percent of its gross income from the provision of services that are treated, for purposes of section 448 (d)(2)(A) and the regulations thereunder, as services performed in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting.
2. (2)Treatment as a single activity
  1. (i)Undertakings controlled by the same interest. A taxpayer's interests in two or more professional service undertakings that are controlled by the same interests (within the meaning of paragraph (j) of this section) shall be treated as part of the same activity of the taxpayer.
  2. (ii)Undertakings involving significant similar or significant related services. A taxpayer's interests in two or more professional service undertakings that involve the provision of significant similar services or significant related services shall be treated as part of the same activity of the taxpayer.
  3. (iii)Coordination rule.
    1. (A)Except as provided in paragraph (h)(2)(iii)(B) of this section, a taxpayer's interests in two or more undertakings (the “original undertakings”) that are treated as part of the same activity of the taxpayer under the provisions of paragraph (h)(2) (i) or (ii) of this section shall be treated as interests in a single professional service undertaking (the “aggregated undertaking”) for purposes of reapplying such provisions.
    2. (B)If any original undertaking included in an aggregated undertaking and any other undertaking that is not included in such aggregated undertaking involve the provision of significant similar or related services, the aggregated undertaking and such other undertaking shall be treated as undertakings that involve the provision of significant similar or related services for purposes of reapplying the provisions of paragraph (h)(2)(ii) of this section.
3. (3)Significant similar or significant related services. For purposes of this paragraph (h)—
  1. (i)Services (other than consulting services) in any field described in paragraph (h)(1)(ii) of this section are similar to all other services in the same field;
  2. (ii)All the facts and circumstances are taken into account in determining whether consulting services are similar;
  3. (iii)Two professional service undertakings involve the provision of significant similar services if and only if—
    1. (A)Each such undertaking provides significant professional services; and
    2. (B)Significant professional services provided by one such undertaking are similar to significant professional services provided by the other such undertaking;
  4. (iv)Services are significant professional services if and only if such services are in a field described in paragraph (h)(1)(ii) of this section and more than 20 percent of the undertaking's gross income is attributable to services in such field (or, in the case of consulting services, to similar services in such field); and
  5. (v)Two professional service undertakings involve the provision of significant related services if and only if more than 20 percent of the gross income of one such undertaking is derived from customers that are also customers of the other such undertaking.
4. (4)Examples. The following examples illustrate the application of this paragraph (h). In each example that does not state otherwise, the taxpayer is an individual, and the facts, analysis, and conclusions relate to a single taxable year.
  1. (i)[Reserved]
(j)Control by the same interests and ownership percentage
1. (1)In general. Except as otherwise provided in paragraph (j)(2) of this section, all the facts and circumstances are taken into account in determining, for purposes of this section, whether undertakings are controlled by the same interests. For this purpose, control includes any kind of control, direct or indirect, whether legally enforceable, and however exercisable or exercised. It is the reality of control that is determinative, and not its form or mode of exercise.
2. (2)Presumption
  1. (i)In general. Undertakings are rebuttably presumed to be controlled by the same interests if such undertakings are part of the same common-ownership group.
  2. (ii)Common-ownership group. Except as provided in paragraph (j)(2)(iii) of this section, two or more undertakings of a taxpayer are part of the same common-ownership group for purposes of this paragraph (j)(2) if and only if the sum of the common-ownership percentages of any five or fewer persons (within the meaning of section 7701(a)(1), but not including passthrough entities) with respect to such undertakings exceeds 50 percent. For this purpose, the common-ownership percentage of a person with respect to such undertakings is the person's smallest ownership percentage (determined in accordance with paragraph (j)(3) of this section) in any such undertaking.
  3. (iii)Special aggregation rule. If, without regard to this paragraph (j)(2)(iii), an undertaking of a taxpayer is part of two or more common-ownership groups, any undertakings of the taxpayer that are part of any such common-ownership group shall be treated for purposes of this paragraph (j)(2) as part of a single common-ownership group in determining the activities of such taxpayer.
3. (3)Ownership percentage
  1. (i)In general. For purposes of this section, a person's ownership percentage in an undertaking or in a passthrough entity shall include any interest in such undertaking or passthrough entity that the person holds directly and the person's share of any interest in such undertaking or passthrough entity that is held through one or more passthrough entities.
  2. (ii)Passthrough entities. The following rules apply for purposes of applying paragraph (j)(3)(i) of this section:
    1. (A)A partner's interest in a partnership and share of any interest in a passthrough entity or undertaking held through a partnership shall be determined on the basis of the greater of such partner's percentage interest in the capital (by value) of such partnership or such partner's largest distributive share of any item of income or gain (disregarding guaranteed payments under section 707(c)) of such partnership.
    2. (B)A shareholder's interest in an S corporation and share of any interest in a passthrough entity or undertaking held through an S corporation shall be determined on the basis of such shareholder's stock ownership.
    3. (C)A beneficiary's interest in a trust or estate and share of any interest in a passthrough entity or undertaking held through a trust or estate shall not be taken into account.
  3. (iii)Attribution rules
    1. (A)In general. Except as otherwise provided in paragraph (j)(3)(iii)(B) of this section, a person's ownership percentage in a passthrough entity or in an undertaking shall be determined by treating such person as the owner of any interest that a person related to such person owns (determined without regard to this paragraph (j)(3)(iii)) in such passthrough entity or in such undertaking.
    2. (B)Determination of common-ownership percentage. The common-ownership percentage of five or fewer persons with respect to two or more undertakings shall be determined, in any case in which, after the application of paragraph (j)(3)(iii)(A) of this section, two or more such persons own the same interest in any such undertaking (the “related-party owners”) by treating as the only owner of such interest (or portion thereof) the related-party owner whose ownership of such interest (or a portion thereof) would result in the highest common-ownership percentage.
    3. (C)Related person. A person is related to another person for purposes of this paragraph (j)(3)(iii) if the relationship of such persons is described in section 267(b) or 707(b)(1).
4. (4)Special rule for trade or business activities. In determining whether two or more trade or business activities are controlled by the same interests for purposes of paragraph (g) of this section, each such activity shall be treated as a separate undertaking in applying this paragraph (j).
5. (5)Examples. The following examples illustrate the application of this paragraph (j):
(k)Identification of rental real estate activities
1. (1)Applicability
  1. (i)In general. Except as otherwise provided in paragraph (k)(6) of this section, this paragraph (k) applies to a taxpayer's interests in rental real estate undertakings (within the meaning of paragraph (k)(1)(ii) of this section).
  2. (ii)Rental real estate undertaking. For purposes of this paragraph (k), a rental real estate undertaking is a rental undertaking (within the meaning of paragraph (d) of this section) in which at least 85 percent of the unadjusted basis (within the meaning of § 1.469-2T(f)(3)) of the property made available for use by customers is real property. For this purpose the term “real property” means any tangible property other than tangible personal property (within the meaning of § 1.48-1(c)).
2. (2)Identification of activities
  1. (i)Multiple undertakings treated as a single activity or multiple activities by taxpayer. Except as otherwise provided in this paragraph (k), a taxpayer may treat two or more rental real estate undertakings (determined after the application of paragraph (k)(2) (ii) and (iii) of this section) as a single activity or may treat such undertakings as separate activities.
  2. (ii)Multiple undertakings treated as a single activity by passthrough entity. A taxpayer must treat two or more rental real estate undertakings as a single rental real estate undertaking for a taxable year if any passthrough entity through which the taxpayer holds such undertakings treats such undertakings as a single activity on the applicable return of the passthrough entity for the taxable year of the taxpayer.
  3. (iii)Single undertaking treated as multiple undertakings. Notwithstanding that a taxpayer's interest in leased property would, but for the application of this paragraph (k)(2)(iii), be treated as used in a single rental real estate undertaking, the taxpayer may, except as otherwise provided in paragraph (k)(3) of this section, treat a portion of the leased property (including a ratable portion of any common areas or facilities) as a rental real estate undertaking that is separate from the undertaking or undertakings in which the remaining portion of the property is treated as used. This paragraph (k)(2)(iii) shall apply for a taxable year if and only if—
    1. (A)Such portion of the leased property can be separately conveyed under applicable State and local law (taking into account the limitations, if any, imposed by any special rules or procedures, such as condominium conversion laws, restricting the separate conveyance of parts of the same structure); and
    2. (B)The taxpayer holds such leased property directly or through one or more passthrough entities, each of which treats such portion of the leased property as a separate activity on the applicable return of the passthrough entity for the taxable year of the taxpayer.
3. (3)Treatment in succeeding taxable years. All rental real estate undertakings or portions of such undertakings that are treated, under this paragraph (k), as part of the same activity for a taxable year ending after August 9, 1989 must be treated as part of the same activity in each succeeding taxable year.
4. (4)Applicable return of passthrough entity. For purposes of this paragraph (k), the applicable return of a passthrough entity for a taxable year of a taxpayer is the return reporting the passthrough entity's income, gain, loss, deductions, and credits taken into account by the taxpayer for such taxable year.
5. (5)Evidence of treatment required. For purposes of this paragraph (k), a person (including a passthrough entity) does not treat a rental real estate undertaking as multiple undertakings for a taxable year or, except as otherwise provided in paragraph (k) (2)(ii) or (3) of this section, treat multiple rental real estate undertakings as a single undertaking for a taxable year unless such treatment is reflected on a schedule attached to the person's return for the taxable year.
6. (6)Coordination rule for rental of nondepreciable property. This paragraph (k) shall not apply to a rental real estate undertaking if less than 30 percent of the unadjusted basis (within the meaning of § 1.469-2T(f)(3)) of property used or held for use by customers in such undertaking during the taxable year is subject to the allowance for depreciation under section 167.
7. (7)Coordination rule for rental of dwelling unit. For any taxable year in which section 280A(c)(5) applies to a taxpayer's use of a dwelling unit—
  1. (i)Paragraph (k) (2) and (3) of this section shall not apply to the taxpayer's interest in such dwelling unit; and
  2. (ii)The taxpayer's interest in such dwelling unit shall be treated as a separate activity of the taxpayer.
8. (8)Examples. The following examples illustrate the application of this paragraph (k). In each example, the taxpayer is an individual whose taxable year is the calendar year.
(l)[Reserved]
(m)Consolidated groups
1. (1)In general. The activities of a consolidated group (within the meaning of § 1.469-1T(h)(2)(ii)) and of each member of such group shall be determined under this section as if the consolidated group were one taxpayer.
2. (2)Examples. The following examples illustrate the application of this paragraph (m). In each example, the facts, analysis, and conclusions relate to a single taxable year.
(n)Publicly traded partnerships. The rules of this section shall apply to a taxpayer's interest in business and rental operations held through a publicly traded partnership (within the meaning of section 469(k)(2)) as if the taxpayer had no interest in any other business and rental operations. The following example illustrates the application of this paragraph (n):
(o)Elective treatment of undertakings as separate activities
1. (1)Applicability. This paragraph applies to a taxpayer's interest in any undertaking (other than a rental real estate undertaking (within the meaning of paragraph (k)(1)(ii) of this section)) that would otherwise be treated under this section as part of an activity that includes the taxpayer's interest in any other undertaking.
2. (2)Undertakings treated as separate activities. Except as otherwise provided in this paragraph (o), a person (including a passthrough entity) shall treat an undertaking to which this paragraph (o) applies as an activity separate from the remainder of the activity in which such undertaking would otherwise be included for a taxable year if and only if, for such taxable year or any preceding taxable year, such person made an election with respect to such undertaking under this paragraph (o).
3. (3)Multiple undertakings treated as a single activity by passthrough entity. A person (including a passthrough entity) must treat interests in two or more undertakings as part of the same activity for a taxable year if any passthrough entity through which the person holds such undertakings treats such undertakings as part of the same activity on the applicable return of the passthrough entity for the taxable year of such person.
4. (4)Multiple undertakings treated as a single activity for a preceding taxable year. If a person (including a passthrough entity) treats undertakings as part of the same activity on such person's return for a taxable year ending after August 9, 1989, such person may not treat such undertakings as part of different activities under this paragraph (o) for any subsequent taxable year.
5. (5)Applicable return of passthrough entity. For purposes of this paragraph (o), the applicable return of a passthrough entity for a taxable year of a taxpayer is the return reporting the passthrough entity's income, gain, loss, deductions, and credits taken into account by the taxpayer for such taxable year.
6. (6)Participation. The following rules apply to multiple activities (the “separate activities”) that would be treated as a single activity (the “original activity”) if the taxpayer's activities were determined without regard to this paragraph (o):
  1. (i)The taxpayer shall be treated as materially participating (within the meaning of § 1.469-5T) for the taxable year in the separate activities if and only if the taxpayer would, but for the application of this paragraph (o), be treated as materially participating for the taxable year in the original activity.
  2. (ii)The taxpayer shall be treated as significantly participating (within the meaning of § 1.469-5T(c)(2)) for the taxable year in the separate activities if and only if the taxpayer would, but for the application of this paragraph (o), be treated as significantly participating for the taxable year in the original activity.
7. (7)Election
  1. (i)In general. A person makes an election with respect to an undertaking under this paragraph (o) by attaching the written statement described in paragraph (o)(7)(ii) of this section to such person's return for the taxable year for which the election is made (see paragraph (o)(2) of this section).
  2. (ii)Written statement. The written statement required by paragraph (o)(7)(i) of this section must—
    1. (A)State the name, address, and taxpayer identification number of the person making the election;
    2. (B)Contain a declaration that an election is being made under § 1.469-4T(o);
    3. (C)Identify the undertaking with respect to which such election is being made; and
    4. (D)Identify the remainder of the activity in which such undertaking would otherwise be included.
8. (8)Examples. The following examples illustrate the application of this paragraph (o):
(p)Special rule for taxable years ending before August 10, 1989
1. (1)In general. For purposes of applying section 469 and the regulations thereunder for a taxable year ending before August 10, 1989, a taxpayer's business and rental operations may be organized into activities under the rules or paragraphs (b) through (n) of this section or under any other reasonable method. For example, for such taxable years a taxpayer may treat each of the taxpayer's undertakings as a separate activity, or a taxpayer may treat undertakings that involve the provision of similar goods or services as a single activity.
2. (2)Unreasonable methods. A method of organizing business and rental operations into activities is not reasonable if such method—
  1. (i)Treats rental operations (within the meaning of paragraph (d)(3) of this section) that are not ancillary to a trade or business activity (within the meaning of § 1.469-1T(e)(2)) as part of a trade or business activity;
  2. (ii)Treats operations that are not rental operations and are not ancillary to a rental activity (within the meaning of § 1.469-1T(e)(3)) as part of a rental activity;
  3. (iii)Includes in a passive activity of a taxpayer any oil or gas well that would be treated, under paragraph (e)(1) of this section, as a separate undertaking in determining the taxpayer's activities;
  4. (iv)Includes in a passive activity of a taxpayer any interest in a dwelling unit that would be treated, under paragraph (K)(7) of this section, as a separate activity of the taxpayer; or
  5. (v)Is inconsistent with the taxpayer's method of organizing business and rental operations into activities for the taxpayer's first taxable year beginning after December 31, 1986.
3. (3)Allocation of dissallowed deductions in succeeding taxable year. If any of the taxpayer's passive activity deductions or the taxpayer's credits from passive activities are disallowed under § 1.469-1T for the last taxable year of the taxpayer ending before August 10, 1989, such disallowed deductions or credits shall be allocated among the taxpayer's activities for the first taxable year of the taxpayer ending after August 9, 1989, using any reasonable method. See § 1.469-1T(f)(4).