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CASE STUDY

is not considered income from real for the occupants’ use, and prepaid services were not primarily for the occu-
estate rental if services are also rendered vouchers for ride-share services from the pants’ convenience. Instead, the services
to the occupant (Regs. Sec. 1.1402(a)- property to the nearest business district. (cleaning and maintaining the property)
4(c)). Furnishing heat and light; clean- Here, the IRS attorneys concluded that kept it suitable for occupancy.
ing public entrances, exits, stairways, the services were provided for the occu- Income from renting personal prop-
and lobbies; or collecting trash are not pants’ convenience because they were not erty is SE income if the taxpayer is in the
considered to be services rendered to the clearly required to maintain the space trade or business of renting such prop-
occupant. But services rendered primar- in a condition for occupancy and were erty. Generally, based on the Supreme
ily for the occupant’s convenience (such so substantial that the compensation for Court’s decision in Groetzinger, 480 U.S.
as maid service) do subject income from them constituted a material portion of 23 (1987), a trade or business is an activ-
the rental activity to SE tax. the rent. So, the net rental income from ity that the taxpayer engages in regularly
Whether services provided in con- those properties was SE income. and continuously with the primary pur-
nection with renting out a living space In the second situation, the taxpayers pose of generating income or profit. ■
are for the occupant’s convenience rented a fully furnished room and bath-
depends on the facts. CCA 202151005 room in their home. Renters could access Contributor
provides two examples related to the home’s common areas only to enter
short-term rentals offered on an online and exit their room and bathroom. They Shaun M. Hunley, J.D., LL.M., is an
marketplace (such as Airbnb or VRBO). had no access to other common areas executive editor with Thomson Reuters
In the first situation, the taxpayer rented such as the kitchen and laundry room. Checkpoint. For more information
fully furnished vacation property and The taxpayer cleaned the space between about this column, contact
provided daily maid service, access to each occupant’s stay. Here, the net rental thetaxadviser@aicpa.org.
dedicated Wi-Fi, recreational equipment income was not SE income because the

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50 October 2022 The Tax Adviser