Sec 469 grouping strategy feedback requested

[johna1182]

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!  

[tagteam · Accepted solution]

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

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

[johna1182]

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/