AICPA Asks IRS to Update Instructions for Form Taxpayers Use to Report Limitation on Business Losses

April 5, 2019

  • AICPA recommends change to definition of a “trade or business” on instructions for 2018 Form 461

Washington, D.C. (April 3, 2019) – The American Institute of CPAs (AICPA) today asked the Internal Revenue Service (IRS) to update its definition of a “trade or business” on the instructions for Form 461, Limitation on Business Losses.

The current instructions for Form 461 state, “An activity qualifies as a trade or business if your primary purpose for engaging in the activity is for income or profit and you are involved in the activity with continuity and regularity.”

The AICPA recommended the instructions instead state, “An activity qualifies as a trade or business if your primary purpose for engaging in the activity is for income or profit and the activity is conducted with continuity and regularity.”

The AICPA explained the recommendation in its letter to the IRS, “The language in the instructions should specify that the ‘activity’ is conducted with regularity and continuity.  The taxpayer’s ‘involvement’ in the regularity and continuity is not one of the tests for a trade or business.  The taxpayer may have a passive role as an investor in a partnership, but he/she is still ‘in’ a trade or business if the business itself is conducted with regularity and continuity.  Likewise, a sole proprietor may not have involvement in her sole proprietorship in the quantitative sense of hours, but nonetheless the business is conducted with regularity and continuity (through agents hired by the sole proprietor).”