Sec 469 grouping strategy feedback requested

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Was hoping to get feedback from the discussion group on my idea of how to handle grouping an operating business with a building that is being purchased to rent space to the business under Sec 1.469-4.

The operating business is an LLC, but files as an S Corp election and so completes a form 1120-S every year.

The building is being purchased in 2022 to then rent the space to the business. Building will be set up as an LLC but with no S Corp filing election.

I believe this will meet the requirements to group the two activities under 1.469-4. I have researched those requirements.

Here's where I'm not quite sure:

-Can the P&L for the new building LLC just be added/grouped to the results of the operating business within the 1120-S form? I think this would be the case. I would also check box J of form 1120-S identifying results are grouped and attach a letter for the IRS with information about the grouping.

-Is the fact that the building LLC is not an S Corp election a problem (grouping an S Corp election entity and a non S Corp election entity)?

I would appreciate any constructive feedback!

Anonymous_Answer

Level 15

Does the grouping comply with Section 1.469-4(d)(1)(i)?

Typically, rental activities cannot be grouped with trade or business activities.

Anonymous_Answer

Level 15

Does the grouping comply with Section 1.469-4(d)(1)(i)?

Typically, rental activities cannot be grouped with trade or business activities.

johna1182Author

Level 2

Thank you for your comments. I believe the grouping meets the requirements of Sec 1.469-4(d)(1)(i). That part I researched. Here's an article I found about the strategy also.

https://costsegregationservices.com/grouping-a-rental-activity-with-a-business-activity/