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income from these rental activities income from living quarters, the tax- He reasoned that the IRS could
can be classified as earnings from payer must first determine whether not impose a penalty for the years
self-employment.77 This advice was in services are rendered to the occupants 2004–2014 because it had not issued a
response to a question asking for clarifi- of the space to determine whether it deficiency notice for the 2004 rollover
cation about how services, such as maid should be considered earnings from transaction that gave rise to the excess
services, rendered to occupants can af- self-employment. If the taxpayer does contribution; his 2004 income tax
fect the rental income’s classification. not render services to the occupants, return was not examined. Denying his
Some of the major questions the income may be excluded from net motion for summary judgment, the
answered in the published ad- earnings from self-employment. Tax Court found nothing in Sec. 4973,
vice included: If services are rendered to the oc- Treasury regulations, or other IRS
■ Is a “rental activity” under Sec. cupants, the net rental income should authority “that makes the assertion of
469(c)(2) excluded from net earn- be included in net earnings from self- an income tax deficiency a precondition
ings from self-employment under employment if the following two facts for determining an excise tax deficiency
Sec. 1402(a)? are present: (1) the services rendered for the same year.” ■
■ Can a taxpayer’s rental of living are not clearly required to maintain the
quarters be classified as “rentals space for occupancy, and (2) the services
from real estate” and thus be are substantial enough that compensa-
excluded from net earnings from tion for them can be said to constitute a
self-employment, specifically, when material portion of the rent. Contributors
the taxpayer is not a real estate Katie Bowles, CPA, is a tax partner at
dealer? Sec. 4973: Tax on excess Deloitte Tax LLP in Costa Mesa, Calif.
The advice memorandum indicates contributions to certain
that an activity’s classification as a tax-favored accounts and Elizabeth Brennan, CPA, is a practitioner
in New Orleans. Christina Figueroa,
rental activity does not, in and of itself, annuities
CPA, is a partner with PwC LLP in Los
exclude the net earnings from self- In Couturier,78 the taxpayer requested
Angeles. Mary Kay Foss is a CPA
employment tax. summary judgment that he was not
in Walnut Creek, Calif. Shannon
In addition, if the taxpayer is not liable for the 6% excise tax penalty for
Hudson, CPA, MST, is a founding part-
a real estate dealer and earns rental overfunding his IRA by $25 million.
ner of Altair Group PLLC in Bedford,
N.H. Amie Kuntz, CPA, is a partner in
the national tax group of RubinBrown
AICPA RESOURCES LLP. Michael Levy, CPA, is a partner
with Crowe LLP in New York City. Dana
Webcast
McCartney, CPA, is a partner with
AICPA’s Annual Federal Tax Update Maxwell Locke & Ritter LLP in Austin,
Texas. Darren Neuschwander, CPA,
CPE self-study
is a managing member with Green,
Individual Tax Fundamentals — Tax Staff Essentials Neuschwander & Manning LLC, a
virtual CPA firm with members across
Intermediate Individual Taxation — Tax Staff Essentials
the country. Robert Tobey, CPA, is
Tax Section resources a partner with Reid LLP in New York
City. Neuschwander is the chair, and
Annual Tax Compliance Kit
the other authors are members, of the
Tax Season library AICPA Individual & Self-Employed Tax
Technical Resource Panel. For more
Individual Income Taxation library
information about this article, contact
For more information or to make a purchase, visit aicpa.org/cpe-learning or call thetaxadviser@aicpa.org.
the Institute at 888-777-7077.

77. Chief Counsel Advice 202151005. 78. Couturier, T.C. Memo. 2022-69.

www.thetaxadviser.com March 2023 45